 Based on last year's numbers of all this kind of stuff that we just allocated out that we're going to put in the factory overhead And I want to point out also that note that Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website Broken out by category further broken out by course each course then organized in a logical Reasonable fashion making it much more easy to find what you need than can be done on a YouTube page We also include added resources such as excel practice problems PDF files and more like Quickbooks backup files when applicable So once again click the link below for a free month membership to our website and all the content on it The factory overhead before this had nothing in it and that's just to point out that we could do this allocation That's why we base it on last year's numbers And that's why it's an estimate because we want to be able to allocate it out before maybe there's even stuff in the factory overhead Because it's gonna even out at the end of the time period and we'll have to make an adjustment for it So so that's why we have to make the estimate kind of based on last year's numbers We actually have negative factory overhead We allocated stuff out before we recorded the factory overhead in this case and so now we have a negative factory overhead Kind of like negative inventory. We're gonna put the stuff in the factory overhead In the next few journal entries and then we will end up with something close Hopefully to zero it should go in the factory overhead and then out of factory of it or in this case out of factory of it and then in the factory overhead, but so it should even out by the end of the time period and so We're putting it in there and then the other side is going in here in the working process So we're putting it in the working process. Here's working process. What's in working process now? Remember, this is direct labor this I mean, this was direct material. This was direct labor This is factory overhead and we're gonna have to then allocate that of course to the job because we hit the working process We need to back this number out by job. Here's how we're gonna back it up over here now How we calculating this we're saying direct labor so in this case direct labor total was this 218 we did last time 218 times point five. That's how we're coming up with the 109 total If we want to break it out by job, then we're just gonna say, okay, here's the direct labor the 30,000 Times point five. That's our 15 for job 14 and then we're doing the same thing here the 120 Times point five. That's the 60,000 thousand here and then the 68,000 here 68,000 times point five. That's the 34,000 now. Remember these numbers don't have anything to do with labor But we used labor in order to see how big each of these jobs are Relative to each other. So you notice it this one had labor of 120 the rationale being that we should allocate more To this job based on the fact that direct labor is higher because that would indicate that it's a bigger job therefore we allocated More overhead 60 to here compared to 15 which had much less direct labor. These two aren't directly related This direct labor indicates the size of the job and therefore the allocation method for the factory overhead All right. So next time indirect labor paid and assigned to the factory. All right indirect labor So we're gonna debit factory overhead. We're gonna credit cash These are gonna be the types of things that we're gonna have to put into factory overhead, which we already allocated out before so the factory overhead what indirect labor once again, we're gonna think about payroll here This is payroll happening. We're not thinking about payroll taxes. We're deputing instead of payroll expense again We're debiting factory overhead Because it's going into the assets last time we debited factory overhead for payroll for the direct labor and The difference here is that we don't know which job these guys worked on specifically It might be the supervisors or something that kind of supervised all the jobs or maybe we don't know what they did really But we need to apply it to the job somehow So therefore we're gonna put it in the factory overhead and then allocate it out using that allocation method We did last time so we already allocated it out See and now we're putting it in this 14,000 into factory overhead no effect in this case in the job cost Because when we put it in the factory overhead, we haven't yet applied it to the job We haven't put it in the working process. That's the whole point of us putting it in the factory overhead I don't know what job to put it into Therefore we couldn't put it in the working process We're gonna allocate it out as best we can using some kind of ratio All right And of course the total here still ties out to the total there and the total there and next thing that happens Amounts applied to factory overhead. So here's all the other stuff that can kind of be in factory overhead We got the indirect materials. We've got the factory utilities the factory rent the depreciation These are all things that on the factory anytime something says on the factory that means it's going into inventory That's part of the inventory process and either we can apply it directly to the job Which means we put it in the working process or we can't in this case Therefore it's going into factory overhead. So the journal entries related to this then would be materials We're going to debit factory overhead the 14,000. Uh, I'm sorry factory overhead for the 30,000 That's this item here because we did the 14 last time and then we're going to credit, uh, raw materials inventory It's coming out of the raw materials up here And we can also see that right there All right, and so these are going to be things that we couldn't apply direct like glue or something like that types of material We couldn't apply directly to the job then we got utilities So we're going to debit the factory overhead for the 12 here it is there and we're going to credit cash This is another one that if you think of utilities, you probably think utilities expense And so what are you doing debiting? The factory overhead because it's utilities on the factory and therefore it's part of the inventory And we have to capitalize it so it is in accordance with the accrual matching principle But you may have just memorized that utilities should be debiting utilities expense So you got to unlearn that and then next we have the rent 20,000 to factory overhead. Here's the 20,000 We're going to credit cash again for paying the rent and this is another one. You probably think rent at expense Right, that's why are we debiting factory? I end again same thing. Well, it's rent on the factory where we make inventory Therefore we have to put it into the cost of the inventory and then we have the depreciation on the equipment 30,000 debit here it is in the factory overhead And credit accumulated depreciation once again, you're probably thinking How do we record depreciation expense since the beginning of time debit depreciation expense credit accumulated? Well This we're not having an expense We're putting it into the factory overhead because it's depreciation on the factory So remember we already allocated out of the factory this 109 This is all the stuff that we allocated Here and so the 109 minus all the debits means that we're off our allocation was out of balance by the 3000 That's okay. That's an estimate. We're gonna have to deal with that though at the end here All right, so now we transfer jobs from work and process to finish goods So now we have work in process here the 260 we're gonna we're done with some of that stuff So we're gonna take it out of there and put it into the finish goods So here's our job cost. So we jump we transferred 14 and 15. So here's 14. Here's 15. We're gonna say it's not open anymore It's now closed. It's now closed. So if we take out the calculator here, we're going to say that The two jobs that we have are this 186 thousand plus The 314 Thousand those got allocated out 500,000. Those are allocated out. What's left just the yellow account of 260 260 that's what's going to be left in work in process This and this are going to be allocated out to the 500. How do we do that with a journal entry? We're going to debit the finished goods 500,000 putting it into 500 and we're going to take it out of work in process If we look at the general ledger account, what's happening? It's going in the finished goods debit finished goods 500,000 that's where this number came from crediting work in process was at seven 60 thousand minus the 500 credit brings it to 260 There's the 260 these need to be backed up by the job cost report as they are here All right, so we're still tied out there and next item now We're going to sell so now we've got stuff in finished goods and we're going to sell it Meaning it's going to move to cost a good sold Now the confusing thing when we sell something we sold job 14 and they give us a sales price When we think about job cost system the sales price can actually throw us off because we haven't been thinking about the sales price at all We've been thinking about the cost the whole way through This sales price has nothing to do with our job cost report We may have gotten to the sales price by using the job cost report But the book is usually going to give us a sales price and we're going to record the same journal entry We would if it was just a service company or at least the first half of it's going to be the same meaning we're going to debit In this case the cash 380 and we're going to credit sales. So that's just we got 380,000 cash We're going to credit sales Now would we come up with a 380 the book's going to have to give it We did some kind of markup. We don't we didn't tell us that right? We came up with the sales price What we do know though is job 14 was sold Here's job 14. It's no longer closed. It's shipped. It's gone. It's out And it had a cost of the 186 So what's going to happen this finished goods? We're going to have to give it up Crediting the 186 and we're going to have to put it into the cost of goods sold So we're going to debit cost of goods sold the expense related to the asset that we sold And we're going to credit the finished goods taking it out of finished goods So in terms of our asset accounts, the finished goods is going to go from the 500 Down by the 186 to the 314. So here's the 314 there. Here's the 314 here And of course, and here's going to be the 314 here represented by the job that has been closed But has not yet been shipped out. It's going to be in the finished goods So if we recap this then we can see that the 260,000 260,000 will be in the job cost that represents the job that's still open the job that we're representing With the yellow item. It's going to be still open still in the job cost That's backing up the work in process account Now the job cost system is also going to have jobs that have completed and have gone through the process So we have this job 15 that has closed but has not yet been shipped Shipped that's going to be the 314. That's what's going to be in the finished goods here That's in the finished goods and that's in the finished goods on the trial balance And then of course we have the job that has been shipped out So this job has been completed been shipped out. We've represented that by highlighting the shipped area That's going to be the 186,000 and that's going to be what the cost of goods sold is representing at this point because it has been Shipped out and therefore expense All right, so then we have the last piece. We got the adjust for underappreciated or overappreciated factory overhead So what are we talking about here? We look at the factory overhead. Remember last time we left off with this 3,000 Credit in factory overhead. We applied out 109,000 to our jobs And then we put all of this stuff that's makes up the factory overhead and our estimate was off by the 3000 We need to make that go to zero because we want to Basically have a zero at the end of this time period so that we can make a new estimate next time period So we just need to make that zero. So how do we make it zero? That's a credit Therefore we're going to do the opposite thing to it and debit it making it go down Where are we going to put the other side? Easiest thing to do put it into cost of goods sold crediting cost of goods sold Now you might be saying well, that's kind of funny because cost of goods sold is a debit balance and it's an expensive count Why would we be crediting it? We don't normally credit cost of goods sold and the reason is because uh, it's a small amount Hopefully it's immaterial We're doing this because the estimate was off It's going to be off because it's an estimate and we need to to take it Down somewhere if it's immaterial then taking it to cost of goods sold is the easiest thing to do because Cost of goods sold is something that will then close out to retained earnings Unlike some of the permanent accounts all the permanent accounts which would not close out Therefore once it closes out to retained earnings, it'll be gone And that'll allow us to basically make a new estimate next time From scratch from fresh start. So that's going to be the idea now if it was significant If it's a large amount then we may have to do something else But if it's insignificant meaning it's not going to affect our decision making Then it would seem appropriate to just put it to cost to get sold sold that being uh, the easiest thing to do Also, just note that if if we happen to have gone the other way meaning that we ended up with a debit of like 3000 We would do the same thing. We would make it go to zero We're going to do whatever we need to do to make it go to zero And in this case it would be that would be a credit to make it go to zero And then we would debit cost to get sold once again doing whatever we need to do to make it go to zero As long as it's an immaterial amount no effect on the job cost system of this We still have the 260 tying out to the 260 because the factory overhead We're just dealing with the factory overhead and not the working process not the finished goods at that point