The reason for combining direct labor and overhead costs together and calling them "conversion costs" is that
A)they both are direct costs of production.
B)the equivalent unit amount for direct materials will be the same as that for direct labor and overhead costs.
C)both these types of costs usually are incurred uniformly throughout the production process.
D)the costs for direct labor and overhead are not accounted for separately.

Question

Quizplus · Accepted Answer

Both direct labor and overhead costs usually are incurred uniformly throughout the production process. Combining them as conversion costs helps in better understanding and analyzing the total cost of converting raw materials into finished products. It also simplifies the cost accounting process by eliminating the need to allocate these costs separately. The equivalent unit amount for conversion costs is calculated by adding direct labor and overhead costs and dividing it by the number of units produced.

The Reason for Combining Direct Labor and Overhead Costs Together