Enter the total direct labor cost and the manufacturing overhead into the calculator to determine the conversion cost.

## Conversion Cost Formula

The following formula is used to calculate a conversion cost.

CC = DL + MO

• Where CC is the conversion cost (\$)
• DL is the direct labor cost (\$)
• MO is the manufacturing overhead

## Conversion Cost Definition

A conversion cost is a measure of the total amount of cost it takes to convert raw material into a manufactured good.

## Conversion Cost Example

How to calculate conversion cost?

1. First, determine the direct labor cost.

This will be the cost of any labor that was directly involved in the process of manufacturing the good.

2. Next, determine the total manufacturing overhead.

The manufacturing overhead will be the total overhead cost required for the manufacturing process to occur and the good to be produced.

3. Finally, calculate the conversion cost.

Calculate the conversion cost by adding the direct labor cost to the manufacturing overhead.

## FAQ

What is a conversion cost?

A conversion cost is the total amount of cost it takes to bring a manufactured product from the raw material into a completed good.

How do you reduce conversion costs?

The best methods for reducing conversion costs involve improving efficiency that reduce both direct labor and manufacturing overhead.