Which item is classified as a conversion cost of inventory?
Correct answer: D. Direct labour used in production
- A. Direct materials used in production
- B. Interest on a bank loan
- C. Sales commission paid to agents
- D. Direct labour used in production
Explanation
Direct labour changes raw materials into finished goods and is therefore a conversion cost. Sales commissions and loan interest are not production costs, while direct materials are classified separately as material costs.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
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More Inventory Valuation questions
When an earlier inventory write-down is reversed under IAS 2, the inventory's revised carrying amount cannot exceed:
Which cost is normally excluded from inventory cost because it does not bring inventory to its present location and condition?
Under FOB shipping point terms, when does the buyer generally include goods in transit in its inventory?
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Under IAS 2, inventory is generally tested for a write-down to net realisable value on which basis?
When inventory is sold, its carrying amount is generally recognized as an expense in which period?