Costume Productions manufactures designer costumes for holiday occasions. The ma

Question

Costume Productions manufactures designer costumes for holiday occasions. The managerial accountant understands that the three building blocks of process costing include conversion costs, equivalent units, and inventory flow assumptions. The managerial accountant uses an automated production process and condenses the three manufacturing costs into two categories: (1) direct materials, and (2) conversion costs. Based on the information listed below, what are the total monthly conversion costs? Direct Materials Direct Labor Manufacturing Overhead $250,000 $160,000 $95,000

Explanation / Answer

Conversion costs are those production costs required to convert raw materials into completed products. The concept is used in cost accounting to derive the value of ending inventory, which is then reported in the financial statements. It can also be used to determine the incremental cost of creating a product, which could be useful for price setting purposes

Conversion costs = Direct labor + Manufacturing overhead

= 160,000 + 95,000 = 255,000

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