In the context of calculating Cost of Goods Sold, conversion costs consist of:

• A. Direct materials and direct labor
• B. Direct materials and manufacturing overhead
• C. Direct materials only
• D. Direct labor and manufacturing overhead

Answer: (D)

Verified step by step guidance

1. Understand the concept of conversion costs: Conversion costs are the costs incurred to convert raw materials into finished goods. They include direct labor and manufacturing overhead, but not direct materials.
2. Break down the components: Direct labor refers to the wages paid to workers who are directly involved in the production process. Manufacturing overhead includes indirect costs such as factory utilities, depreciation on equipment, and factory maintenance.
3. Eliminate incorrect options: Direct materials are not part of conversion costs, so any option including direct materials can be ruled out.
4. Identify the correct components: The correct components of conversion costs are direct labor and manufacturing overhead.
5. Conclude: The correct answer is that conversion costs consist of direct labor and manufacturing overhead, as these are the costs directly associated with the production process excluding raw materials.