Conversion costs are expenses for overhead and direct labor related to the conversion of raw materials into

products.

Conversion costs are similar to prime costs, except that the latter consists of costs related to direct labor and direct materials, not direct labor and overhead.

Conversion Costs

- are expenses incurred when turning raw materials into a product.

- include direct labor and overhead expenses.

47. During the month of May, Bennett Manufacturing Company purchased $43,000 of raw materials. The manufacturing overhead totaled $27,000 and the total
manufacturing costs were $106,000. Assuming a beginning inventory of raw materials of $8,000 and an ending inventory of raw materials of $6,000, direct labor
must have totaled:

a. $34,000.
b. $38,000.
c. $36,000.
 d. $45,000.

*Solution:

8,000 - Beg. Raw Materials Inventory

(+) 43,000 - Purchases of Raw Materials

51,000 - Total Raw Materials Available for Use

(-) 6,000 - End. Raw Materials Inventory

45,000 - Direct Materials used in production - DM

34,000 - Direct Labor - DL

27,000 - Factory Overhead - FOH

106,000 - Total Manufacturing Costs

45. The regression analysis results for ABC Co. is shown as y = 90x + 45. The standard error (Sb) is 30 and coefficient of determination (r²) is 0.81. The budget calls
for production of 100 units. What is the ABC’s estimate of total costs?

a. P3,090
b. P4,590
c. P9,030
d. P9,045