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Direct materials cost $700, direct labor is $500 and factory overhead is $300 on a batch of cabinets. What are conversion costs?
A$1,200
B$800
C$1,000
D$1,500
Answer & Solution
Correct answer: B. $800
1. Conversion costs are direct labor plus factory overhead, the costs of turning materials into a finished item.
2. Direct labor is $500 and factory overhead is $300.
3. Conversion costs are $500 plus $300, which is $800.
4. $1,200 is prime cost and $1,500 is the total product cost, so neither answers this question.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 1.2 Cost Terminology and Concepts_
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