Conversion Costs. A conversion cost is the amount incurred during the transformation of raw materials inventory into finished goods.In other words, this is the amount of direct labor and overhead costs that are required to turn raw materials into an actual product.he true cost a company uses in the process of turning raw materials into finished goods includes both overhead and direct labor. Managerial accountants and production managers measure these conversion costs to estimate production expenses, develop product-pricing models, and estimate the value of finished inventory.