JAMB Accounts Principles of Accounts 2018 Paper

Concept:Conversion costs are production costs needed to change raw materials into finished goods.They exclude direct material cost.Explanation:The conversion cost formula is:$$\text{Conversion cost} = \text{Direct labour} + \text{Factory overhead}$$Factory overhead includes indirect production costs such as rent, power, and indirect wages.Purchases and material cost are related to raw materials, so they are not conversion costs.Wages are part of conversion cost only when they are direct factory wages; in the options, "wages" is not specified as factory direct labour.Therefore, the option that clearly represents a conversion cost is factory overhead.Answer:A. Factory overhead