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I had a question about an MCQ, so I asked a Gleim professor and their response left me with a bad feeling like they were tapping me on the hand for asking. Take a look, am I being overly sensitive about their comment…
Fact Pattern:
The estimated unit costs for Cole Co. using absorption (full) costing and planning to produce and sell at a level of 12,000 units per month are as follows:Estimated
Cost Item
Unit Cost
Direct materials
$32
Direct labor
20
Variable manufacturing overhead
15
Fixed manufacturing overhead
6
Variable selling
3
Fixed selling
4
Product Question:
Cole’s estimated conversion costs per unit area: $35
b: $41
c: $48
d: $67
Your Answer: b
Correct Answer: bYour Question: If the company was using absorption costing, why wasn’t direct materials taken into account?
Response:
Please note that the answer explanation says that conversion costs are costs spent converting the direct materials. Conversion costs include direct labor and manufacturing overhead. Direct labor and manufacturing costs are costs that *convert* raw materials or direct materials into finished goods.***
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