91Ó°ÊÓ

Transferred-in costs, weighted-average method. Spelling Sports, which produces basketballs, has two departments: cutting and stitching. Each department has one direct-cost category (direct materials) and one indirect-cost category (conversion costs). This problem focuses on the stitching department. Basketballs that have undergone the cutting process are immediately transferred to the stitching department. Direct material is added when the stitching process is \(70 \%\) complete. Conversion costs are added evenly during stitching operations. When those operations are done, the basketballs are immediately transferred to Finished Goods. Spelling Sports uses the weighted-average method of process costing. The following is a summary of the March 2017 operations of the stitching department: $$\begin{array}{|l|l|c|c|c|c|} \hline & \multicolumn{2}{|c|} {\text { A }} & \multicolumn{1}{c|} {\text { B }} & \multicolumn{1}{c|} {\text { C }} & \multicolumn{1}{c|} {\text { D }} & \multicolumn{1}{c|} {\text { E }} \\ \hline & & \begin{array}{c} \text { Physical Units } \\ \text { (basketballs) } \end{array} & \begin{array}{c} \text { Transferred-In } \\ \text { costs } \end{array} & \begin{array}{c} \text { Direct } \\ \text { Materials } \end{array} & \begin{array}{c} \text { Conversion } \\ \text { costs } \end{array} \\ \hline 2 & \text { Beginning work in process } & 17,500 & \$ 45,360 & \$ & 0 & \$ 17,660 \\ \hline 3 & \text { Degree of completion, beginning work in process } & & 100 \% & 0 \% & 60 \% \\ \hline 4 & \text { Transferred in during March 2017 } & 56,000 & & & \\ \hline 5 & \text { Completed and transferred out during March 2017 } & 52,000 & & & \\ \hline 6 & \text { Ending work in process, March 31 } & 21,500 & & & \\ \hline 7 & \text { Degree of completion, ending work in process } & & 100 \% & 0 \% & 20 \% \\ \hline 8 & \text { Total costs added during March } & \$ 154,560 & \$ 28,080 & \$ 89,310 \\ \hline \end{array}$$ 1\. Summarize total stitching department costs for March 2017 , and assign these costs to units completed (and transferred out) and to units in ending work in process. 2\. Prepare journal entries for March transfers from the cutting department to the stitching department and from the stitching department to Finished Goods.

Step by step solution

01

Calculate total costs of beginning work in process and costs added during March

To find the total costs in the stitching department for March 2017, we will first add the transferred-in costs, direct materials, and conversion costs of the beginning work in process (Line 2) and the costs added during March (Line 8). Beginning work in process costs: Transferred-in: \( \$ 45,360 \) Direct materials: \( \$ 0 \) Conversion costs: \( \$ 17,660 \) Costs added during March: Transferred-in: \( \$ 154,560 \) Direct materials: \( \$ 28,080 \) Conversion costs: \( \$ 89,310 \) Now, add these costs: Total transferred-in costs: \( \$45,360 + \$154,560 = \$ 199,920 \) Total direct materials costs: \( \$0+\$28,080 = \$ 28,080 \) Total conversion costs: \( \$17,660+\$89,310 = \$ 106,970 \)

02

Calculate equivalent units

Next, we need to calculate the equivalent units for each cost category using the degrees of completion given for the beginning work in process (Line 3) and ending work in process (Line 7). Equivalent units for transferred-in costs: Beginning work in process: \( 17,500 \times 100\% = 17,500 \) Transferred-in during March: \( 56,000 \times 100\% = 56,000 \) Total: \( 17,500 + 56,000 = 73,500 \) Equivalent units for direct materials costs: Beginning work in process: \( 17,500 \times 0\% = 0 \) Transferred-in during March: \( 56,000\times 70\% = 39,200 \) Total: \( 39,200 \) Equivalent units for conversion costs: Beginning work in process: \( 17,500 \times 60\% = 10,500 \) Transferred-in during March: \( 56,000\times 100\% = 56,000 \) Total: \( 10,500 + 56,000 = 66,500 \)

03

Calculate costs per equivalent unit for each category

Now we calculate the costs per equivalent unit for each cost category by dividing the total costs by the equivalent units. Cost per equivalent unit for transferred-in costs: \( \frac{\$199,920}{73,500} = \$2.724 \) Cost per equivalent unit for direct materials costs: \( \frac{\$28,080}{39,200} = \$0.716 \) Cost per equivalent unit for conversion costs: \( \frac{\$106,970}{66,500} = \$1.608 \)

04

Assign costs to completed units and ending work in process

Now we can assign the costs to the completed units (transferred out) and ending work in process by calculating the costs spent on each unit. Cost of completed units: Transferred-in costs: \( 52,000 \times \$2.724 = \$141,648 \) Direct materials costs: \( 52,000 \times \$0.716 = \$37,232 \) Conversion costs: \( 52,000 \times \$1.608 = \$83,616 \) Cost of ending work in process: Transferred-in costs: \( 21,500 \times \$2.724 = \$58,616 \) Direct materials costs: \( 0 \) Conversion costs: \( 21,500 \times \$1.608 \times 20\% = \$6,912 \)

05

Prepare the journal entries

Journal entry for transfer from cutting to stitching department: i) Debit Work in Process - Stitching Department \( \$154,560 \) Credit Work in Process - Cutting Department \( \$154,560 \) Journal entry for transfer from stitching to Finished Goods: ii) Debit Finished Goods \( \$141,648+\$37,232+\$83,616 = \$262,496 \) Credit Work in Process - Stitching Department \( \$262,496 \) And here is the summary: 1. Total stitching department costs for March 2017: \( \$334,416 \) - Costs assigned to completed units: \( \$262,496 \) - Costs assigned to ending work in process: \( \$65,528 \) 2. Journal entries for March transfers: - From cutting to stitching: \( \$154,560 \) - From stitching to Finished Goods: \( \$262,496 \)

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Transferred-In Costs

Transferred-in costs refer to the expenses related to materials or products that have been moved from one department to another within a manufacturing process. In the context of Spelling Sports' basketball production, the cutting department processes basketball components first. Once cutting is complete, these components, along with their associated costs, are transferred to the stitching department. The transferred-in costs represent the value of the materials at this point.
Understanding transferred-in costs is crucial for calculating total production costs, particularly when using process costing methods like the weighted-average method. This method combines costs from the beginning of the period with costs incurred during the current period, helping effectively manage and allocate costs across departments. By tracking transferred-in costs, businesses can ensure accurate cost distribution, leading to more efficient financial planning and management.

Process Costing

Process costing is a cost accounting method used to assign production costs to units of output, especially in situations where goods are substantially identical. In manufacturing environments like Spelling Sports, products pass through multiple departments, such as cutting and stitching, where each department processes them further.
Instead of tracking the costs of individual units, process costing aggregates costs for entire production stages and then averages these over the units produced. This method simplifies cost calculations, especially for large volumes of similar items. By using the weighted-average process costing technique, Spelling Sports is able to smooth out cost fluctuations over time, providing a comprehensive view of production expenses at each phase and ensuring that pricing, budgeting, and financial strategies are based on complete and accurate data.

Stitching Department

The stitching department is a critical stage in the production of basketballs at Spelling Sports. After the initial cutting phase, the materials are brought to this department. Here, the individual parts are sewn together, creating the finished basketball.
In this department, costs incurred include direct materials, introduced when stitching is 70% complete, and conversion costs, which are added consistently throughout the stitching process. Understanding the dynamics of the stitching department helps in identifying where resources are being utilized and how costs progress through the production cycle. This understanding is essential for process costing as it provides insights into which processes are most cost-intensive and can highlight areas for potential efficiency improvements.

Conversion Costs

Conversion costs are expenses incurred to convert raw materials into finished goods. They typically include labor costs and manufacturing overheads. In the context of the stitching department at Spelling Sports, conversion costs are additional to transferred-in costs and direct materials, reflecting all other costs needed to complete the basketballs.
These costs are spread evenly during the stitching process. This consistent application is crucial as it allows for accurate and fair cost allocation throughout the manufacturing process, enabling effective budgeting and financial control. Conversion costs help businesses better understand where efficiencies can be gained and where potential cost savings could be made, ensuring a smooth and economical production process.