Xtreme Sports makes baseball bats.The company buys wood as a direct material.The company's Shaping Department processes the bats, which are transferred to the Coating Department where a sealant is applied.The Shaping Department began manufacturing 20,000 Babe Ruth sluggers during the month of October.There was no beginning inventory. Costs in the Shaping Department for the month of October were: A total of 16,000 bats were completed and transferred to the Coating Department; the remaining 4,000 bats were still in the Shaping Process at the end of the month.All of the Shaping Department's direct materials were placed in process, but on average, only 25% of the conversion cost was applied to the ending work-in-process inventory. What is the cost of the units transferred to Xtreme Sports' Coating Department?

Question

Xtreme Sports makes baseball bats.The company buys wood as a direct material.The company's Shaping Department processes the bats, which are transferred to the Coating Department where a sealant is applied.The Shaping Department began manufacturing 20,000 Babe Ruth sluggers during the month of October.There was no beginning inventory. Costs in the Shaping Department for the month of October were:  A total of 16,000 bats were completed and transferred to the Coating Department; the remaining 4,000 bats were still in the Shaping Process at the end of the month.All of the Shaping Department's direct materials were placed in process, but on average, only 25% of the conversion cost was applied to the ending work-in-process inventory. What is the cost of the units transferred to Xtreme Sports' Coating Department?

Quizplus · Accepted Answer

First, we need to calculate the total cost incurred in the Shaping Department:

Direct materials: $12,000 
Conversion costs: $53,600

Total cost incurred in the Shaping Department = Direct materials + Conversion costs 
= $12,000 + $53,600 
= $65,600

Next, we need to calculate the cost per unit for the 16,000 units completed and transferred:

Cost per unit = Total cost incurred in the Shaping Department ÷ Number of units completed and transferred 
= $65,600 ÷ 16,000 
= $4.10 per unit

Finally, we can calculate the cost of the 16,000 units transferred to the Coating Department:

Cost of units transferred = Cost per unit x Number of units transferred 
= $4.10 per unit x 16,000 units 
= $65,600

Therefore, the cost of the units transferred to the Coating Department is $65,600. However, the question asks for the cost of units transferred, not the total cost incurred in the Shaping Department.

To find the cost of units transferred, we need to adjust the total cost incurred in the Shaping Department for the 4,000 units still in process at the end of the month. Since only 25% of conversion costs are applied to ending work-in-process inventory, we need to multiply the conversion costs incurred in the Shaping Department by 75% to get the actual conversion costs incurred for the 16,000 units transferred:

Conversion costs incurred for the 16,000 units transferred = Conversion costs incurred in the Shaping Department x 75% 
= $53,600 x 75% 
= $40,200

Total cost incurred for the 16,000 units transferred = Direct materials + Conversion costs incurred for the 16,000 units transferred 
= $12,000 + $40,200 
= $52,200

Therefore, the cost of the units transferred to the Coating Department is $52,200, which is closest to answer choice B ($84,800).

Xtreme Sports Makes Baseball Bats