Quick Finance Tip - Conversion Costs

Conversion Cost is the the cost and sum of direct labor costs and overhead costs. Consider it as the cost of what it takes to "convert" raw materials into a finished product. Therefore, you will need production costs and then the amount of raw material used.

Another way of calculating Conversion Costs is by taking Production Costs minus Raw Materials Used. 
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• Production Costs = COGS + Ending Inventory for Finished Goods - Beginning Inventory for Finished Goods
• Raw Material Used = Purchases of Raw Materials + Raw Materials Beginning Inventory - Raw Materials Ending Inventory