When direct labor and overhead enter the production process at the same rates, it is appropriate to use a conversion cost per equivalent unit.

Question

Quizplus · Accepted Answer

When direct labor and overhead are incurred at the same rates, they can be combined into a single cost known as conversion cost. Conversion cost is the sum of direct labor cost and manufacturing overhead cost. This cost per equivalent unit is used in process costing to allocate costs to units of production. Therefore, it is appropriate to use a conversion cost per equivalent unit when direct labor and overhead enter the production process at the same rates.

When Direct Labor and Overhead Enter the Production Process at the Same