Conversion costs may be separated into direct labor and overhead when it is relatively easy to track direct labor and the use of labor occurs in a different pattern than the use of overhead resources.

Question

Quizplus · Accepted Answer

Separating conversion costs into direct labor and overhead makes sense when direct labor can be easily tracked and the pattern of labor usage is different from that of overhead resources. This allows for a more accurate allocation of costs and better understanding of the cost structure of a product or service.

Conversion Costs May Be Separated into Direct Labor and Overhead