Conversion cost is calculated as:
Correct answer: B. Direct labour plus manufacturing overhead
- A. Direct materials plus direct labour
- B. Direct labour plus manufacturing overhead
- C. Prime cost plus selling expenses
- D. Manufacturing overhead plus office expenses
Explanation
Conversion cost is the cost of converting raw materials into finished goods, so it includes direct labour and manufacturing overhead. Direct materials are excluded because they are the input being converted.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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