A conversion cost is a manufacturing cost that is incurred in the process of converting raw materials into finished goods. It includes the expenses related to the direct labor and factory overhead used in the production process.
Out of the options given, wages would be considered a conversion cost. Wages refer to the payment made to workers who are directly involved in the manufacturing process. These workers are typically responsible for transforming the raw materials into finished goods, which makes their wages a necessary part of the conversion process.
Factory overhead, which refers to the indirect costs associated with manufacturing, would also be considered a conversion cost. This includes expenses such as rent, utilities, and equipment maintenance, which are necessary to keep the production process running smoothly.
On the other hand, purchases and material costs are not considered conversion costs. Purchases refer to the amount paid for raw materials and other items that are used in the production process, while material costs are the costs associated with the raw materials themselves. While both of these costs are necessary for production to occur, they are not directly related to the conversion process itself.