- Finished goods are received at (value of components actually consumed + capitalised conversion cost − scrap recovery) ÷ quantity produced — not at the BOM's standard. The difference between planned and actual shows in the Production cost report instead of disappearing into the item cost.
- On a Manufacture: Dr Inventory (finished goods) · Dr Inventory (scrap) · Cr Inventory (each component consumed) · Cr Manufacturing Costs Applied for the conversion cost. Staging and returns post nothing — they move stock between warehouses that share one inventory account.
- Work in progress is reported (stock in WIP warehouses plus conversion cost booked on open orders) rather than posted to a separate account, so the Inventory Valuation report and the Balance Sheet always agree.
- Organisations that do not want labour and overhead absorbed into stock can switch off capitalise conversion cost; finished goods are then valued at material cost alone.