Transferred-in Cost
Transferred-in cost (also known as a previous department cost or a beginning inventory cost) pertains to the manufacturing process, particularly in companies that have a multi-stage production process across various departments or work centers. It represents the costs associated with a product that have been incurred in a previous department or stage of the production process before the product moves to the next department or stage.
In essence, transferred-in costs are the accumulated costs from prior departments that are transferred along with the product to subsequent departments.
Example of Transferred-in Cost
Let’s consider the production process in a textile factory that produces designer shirts.
Company: FineFabrics Ltd., a textile company that produces high-end designer shirts.
Departments:
- Weaving – Raw cotton or fibers are woven into cloth.
- Dyeing – The woven cloth is dyed with various colors.
- Stitching – The dyed cloth is stitched into shirts.
Scenario:
- Weaving:
FineFabrics buys raw cotton for $5 per meter. The weaving process, which involves machinery and labor costs, adds another $3 per meter. Therefore, the total cost incurred in the Weaving department is $8 per meter. - Transfer to Dyeing:
The woven cloth now moves to the Dyeing department. The $8 per meter becomes the transferred-in cost for the Dyeing department. - Dyeing:
In the Dyeing department, the cost of dyes and chemicals for each meter of cloth is $4. Labor and machinery for dyeing add another $2 per meter. Thus, the total cost added in the Dyeing department is $6 per meter. - Transfer to Stitching:
After dyeing, the cloth proceeds to the Stitching department. The accumulated cost until this point is $14 per meter ($8 from Weaving + $6 from Dyeing). This is the transferred-in cost for the Stitching department. - Stitching:
In the Stitching department, materials like buttons and threads add a cost of $1 per shirt. Labor for stitching and quality inspection contributes another $5. Hence, the total cost added in this department is $6 per shirt.(Note: Let’s assume that each shirt requires 1 meter of cloth, for simplicity.) - Completion:
The designer shirt is now complete and ready for the market. Its total production cost is $20 ($8 from Weaving + $6 from Dyeing + $6 from Stitching).
In this textile-focused example, we see the progression of costs as the cloth moves through various departments, accumulating additional costs until it becomes a finished shirt. This reinforces the importance of transferred-in costs in understanding the cumulative cost of producing an item
