TP2.

LO 5.2Why are labor and manufacturing overhead grouped together as conversion costs?

Conversion cost is the cost that is required to convert the raw material into a product. It is a mix of direct labor costs and the manufacturing overhead cost. It is also known as production cost which is required to produce the product

In mathematically,

Conversion cost = Direct labor cost + manufacturing overhead cost

It excludes the direct material cost

These two costs are required to convert the raw material into the final product

The examples of conversion cost are indirect labor, repairs and maintenance charges, etc