Yes conversion cost is sum of direct labor and overheads which required to run the process of production of units.
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false, direct labor and manufacturing overhead = conversion cost
Well, honey, if manufacturing overhead is 20% of total conversion costs, and direct labor is $38,000 and direct materials are $47,000, then total conversion costs would be $38,000 + $47,000 = $85,000. So, if manufacturing overhead is 20% of that, it would be 0.20 x $85,000 = $17,000. So, the manufacturing overhead would be $17,000.
To calculate the direct labor cost, we first need to determine the total conversion cost. Since direct labor is 40% of the conversion cost, indirect labor must be 60%. Therefore, the total conversion cost is 60000 / 0.6 = 100000. Since direct labor is 40% of the conversion cost, direct labor cost is 100000 * 0.4 = 40000. So, the direct labor cost is $40,000.
Predetermined overhead rate based on direct labor cost = Budgeted overhead cost / direct labor cost / 100 Predetermined overhead rate based on direct labor cost = budgeted overhead cost / direct labor hours.
Predetermined overhead rate = Est. total Manuf. Overhead Cost / Est. total amt of allocation base In this case, allocation base would be direct labor (as opposed to machine labor). Hope this helps