CFO Talks : Conversion Cost
Posted on: 02/Jul/2021 9:29:47 AM
CFO Talks : Conversion Cost
- Conversion cost is the cost of converting raw material into finished goods
- This is one area where lot of leakages and wastage`s tend to happen
- Fluctuation of few percentages can badly impact the Cost of Goods Sold
- On other hand lower the conversion cost, higher the Gross margins
- Therefore keeping track of conversion cost is of utmost importance
Below are some of the things you can do to control it:
- Arrive at standard conversion cost per unit
- Itemize the cost that make up the conversion cost
- Budget those costs well in advance
- Compare the costs with the actual cost incurred
- If necessary revise those standard costs
Lot of times the above exercise is performed by cost accountant or in-house finance team.
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