LO 5.2Explain conversion costs using an example.

conversion cost is a manufacturer cost

Explanation:

This is a term used in cost accounting that represents the combination of direct labor cost and manufacturing overhead cost. In essence conversion cost are manufacturer products or production cost which differ from the cost of a products direct material.

Examples of conversion costs include:

1. Direct Labor and related benefit and payroll

2. Equipment depreciation

3. Factory rent.

4. Factory Insurance.

5. Machining.

6. Inspection.

7. Production supervision