Answer :
Conversion costs refer to the combination of direct labor (DL) and factory overhead (FOH) incurred in the production process.
Conversion costs are the expenses incurred in converting raw materials into finished products. These costs include both direct labor (DL) and factory overhead (FOH).
Direct labor (DL) refers to the cost of the labor directly involved in the manufacturing process, such as wages or salaries paid to workers who directly handle or work on the products. It includes the compensation for the actual physical work performed.
Factory overhead (FOH), also known as manufacturing overhead or indirect production costs, includes all other manufacturing costs that are not directly attributable to specific products or units. It encompasses expenses such as rent, utilities, depreciation of manufacturing equipment, maintenance, and indirect labor.
Therefore, conversion costs comprise the combination of direct labor (DL) and factory overhead (FOH) expenses incurred in the production process. These costs are important for assessing the overall cost of production and determining the total manufacturing expenses associated with producing finished goods.
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