In the manufacture of 8,000 units of a product, direct materials cost incurred was $154,600, direct labor cost incurred was $84,000, and applied factory overhead was $45,500. What is the total conversion cost?

a. $129,500
b. $154,600
c. $284,100
d. $238,600

Total conversion cost is $129,500.

Explanation:

Conversion cost includes all the expenses incurred when turning raw materials into finished goods, excluding the cost of materials.

It is the addition of direct labour cost and applied overhead expenses.

Conversion cost together with Prime cost are used to determine the efficiency of production.  Prime cost is made up of direct materials and direct labour.  Conversion cost is made up of direct labour and overheads.  Conversion cost represents the cost applied on materials in order to produce a finished good.