Multiple Choice
Which of the following would be classified as direct materials costs for an automobile manufacturer?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is classified as a conversion cost in manufacturing accounting?
A
Direct materials
B
Sales commissions
C
Advertising expense
D
Direct labor
Verified step by step guidance1
Understand the concept of conversion costs: Conversion costs are the costs incurred to convert raw materials into finished goods. These typically include direct labor and manufacturing overhead.
Analyze the options provided: Direct materials, sales commissions, advertising expense, and direct labor.
Eliminate options that are not conversion costs: Direct materials are classified as prime costs, not conversion costs. Sales commissions and advertising expenses are classified as period costs, not manufacturing costs.
Identify the correct classification: Direct labor is a conversion cost because it is directly involved in transforming raw materials into finished goods.
Conclude that direct labor is the correct answer based on its role in the manufacturing process and its classification as a conversion cost.
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