Transferred-in cost definition
/What is Transferred-In Cost?
Transferred-in cost is the cost that a product accumulates during its tenure in upstream work centers. Thus, it is the accumulated cost of a product when it first arrives in a downstream work center. The transferred-in cost is then treated as the starting cost of the receiving work center, to which additional costs may be added by that work center.
This concept is used in a process costing system.
Characteristics of Transferred-In Cost
The key characteristics of transferred-in cost are as follows:
Carry-forward cost. Transferred-in costs represent the accumulated costs of materials, labor, and overhead from a previous department or process. These costs are treated as part of the cost of production in the receiving department.
Considered a direct material cost. When transferred-in goods or components arrive at the next department, they are treated similarly to direct materials. However, unlike purchased raw materials, transferred-in costs come from internal production rather than external suppliers.
Included in cost accounting systems. Transferred-in costs appear in cost of goods manufactured (COGM) and flow into cost of goods sold (COGS) once finished.
Can include additional costs. When products move from one department to another, additional processing costs may be added, such as additional labor and overhead, further assembly or finishing costs, and spoilage or waste adjustments.
Common in multi-stage manufacturing. Transferred-in costs are frequently used in such industries as textiles, car manufacturing, and food processing.
Example of Transferred-In Costs
Grizzly Golf Carts manufacturers robust golf carts for overweight golfers. Production starts with the frame shop, which bends metal and welds frames before passing these units along to the Engines department. For the company’s latest model, the Grizzly XXL, the frame shop accumulates a cost per unit of $550. This cost becomes the transferred-in cost of the Engines department, which is the starting cost before the costs of the engine and installation labor are included.