Conversion costs include
A) all materials plus direct labour.
B) all materials plus variable overhead allocated.
C) direct labour plus variable and fixed overhead allocated.
D) direct labour plus fixed overhead allocated.

Question

Quizplus · Accepted Answer

Conversion costs are the expenses incurred to convert raw materials into finished goods. Therefore, they include direct labor, which is the cost of wages paid to workers who directly work on the production process. Additionally, they include both variable and fixed overhead costs, which are indirect costs incurred during the production process such as rent, utilities, and equipment maintenance. Therefore, option C is the only choice that correctly defines conversion costs.

Conversion Costs Include