Question 1 A Which of the following is NOT a conversion cost

Question 1.

(A) Which of the following is NOT a conversion cost?

i) Depreciation on headquarters office equipment

ii) Indirect labor costs

iii) Electricity used to run factory machinery

iv) Indirect material costs

(B) Which of the following companies would be most likely to use job-order costing?

i) A potato chip manufacturer

ii) A custom aircraft manufacturer

iii) A pharmaceutical manufacturer

iv) A dairy farm

Solution

Question 1 A Answer is (i) Depreciation on headquaters office equipment Conversion cost is basically the cost which is incurred to convert the raw material into finished goods. Two main heads of conversion cost is Direct labor cost and manufacturing overhead cost. As depreciation is on \"Office\" equipment so it will not be considered as Conversion cost. B Answer is (ii) A custom aircraft Manufacturer Job costing is used by companies where products to be manufactured are unique and produced on order basis