Conversion cost refers to the expenses incurred by a company to transform raw materials into finished products. This includes direct labor costs, such as wages and benefits for workers involved in the production process, as well as indirect costs, such as overhead expenses and equipment maintenance. These costs are essential in determining the overall cost of production and are a crucial factor in determining the profitability of a business. In simpler terms, conversion cost is the total amount of money a company spends to turn inputs into outputs, making it a vital aspect of the manufacturing process.