 Plus the 792 936 thousand that's where we're at at for the factory overhead that ties out to The trial balance over here factory overhead 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 win applicable. So once again, click the link below for a free month membership to our website And all the content on it for the 936 Then we have the overhead rate is on direct labor out percentage of direct labor hours So we have the direct labor used is 780 so if we take a look at this transaction, we're gonna have the 936 How are we calculating that well? We have the direct labor from our last transaction. So if we have our last transaction here in The working process this 780,000 was for direct labor. So if we take the 780,000 times our percentage, which is 1.2 We come up to it 936. So you might be asking well, why would we do that? Why are we allocating the direct labor? So let's think about that. That's where we come up with the number. Why do we have this 120 and why is it based on? the direct labor So remember that our idea here is that we're allocating out the factory overhead to the Working process accounts and if there were multiple accounts We got to determine where to put the work in process in order to do that We're gonna use a pre-determined rate. Usually that rate will be based on the prior year's numbers So it's generally gonna be an estimate based on prior year's numbers The reason you we use direct labor is because direct labor is usually a good cost driver To tell us how much should be allocated to a particular area because the direct labor is usually a good indication of The ratio that should be allocated to one area or another. So that's so note that when we allocate out the factory overhead Based on something like direct labor The two things direct labor has nothing to do with factory overhead direct labor has already been recorded separately It's not like we're recording the direct labor. We're using direct labor in order to help us to allocate the factory overhead alright, so then we got the next transaction work in process inventory is 533 now we're gonna calculate out the cost of goods manufactured So the cost of goods that we've made if we're thinking about a company where we purchase stuff and then sell stuff When we think about the cost of goods sold a different formula, we have purchases We have the beginning inventory plus purchases. We when we make things we don't have purchases We have the stuff that we made so when we get to the cost of goods sold formula, we're gonna talk about When we get to that piece that has purchases in it We're gonna have to substitute for purchases the cost of goods manufactured and therefore We need this whole other worksheet to have cost of goods manufactured Now the cost of good manufactured is not the same thing as the cost of good sold We'll look at the cost of good sold next we need this calculation cost of goods manufactured in order to do the cost of good Sold calculation, which we will do in next time next slide All right, so so what and what's going to be included in the inventory the stuff that we've made the cost of the goods that We manufactured well that we have the direct labor that we put into there and we could see this This is our work in process. So what's in work in process direct labor? Here's our calculation for direct labor We've got I'm sorry. This is direct materials then direct labor. So here's the direct labor. So here's the direct materials Here's the direct labor and then we have the overhead. Here's the overhead Here's the overhead in our work in process account on the general ledger This is our general ledger account Those are the three things you always want to think about when you think of inventory Especially if we're making the inventory we know directly that we actually put in direct materials direct labor overhead If we're purchasing inventory We have we should realize when we see an inventory when we see like a TV or something. We should be saying yeah Well, that's not just plastic. That's direct material. That's direct labor. That's overhead. That's going into the cost of that So it's good to get that in in your mind when we're a manufacturing company That's clear clear that's the case because that happens within that company fits in multiple companies Then that just happened at different stages of along the way So the manufacturing cost added during the month we add those up one million nine thirty five hundred Then we're going to add to that the beginning work in process And that brings us to a total Cost and working process of two million three forty nine five Then we're going to subtract out of that the ending work in process to five thirty three We were given this number We'll talk a bit later when we talk about the equivalent units and whatnot on on the allocation of These these numbers and how we would come up with that number at a later time We're just looking at the flow this at this point and that will give us then the cost of goods manufactured So now we have the cost of goods manufactured again This would be kind of like purchases when we get to the cost of goods formula And when we make stuff we have to calculate how much of the cost of stuff that we manufactured Okay, so now that we have our cost of goods manufactured journal entry. That's that's the stuff we made We've determined the stuff that we made so we can remove the stuff from the finished goods We could take a look at our journal entry from i'm sorry the work in process to The finished goods so our journal entry would be debit to finished goods for the one million eight sixteen five We're going to credit the work in process for the one million eight sixteen Five here if we take a look at our general ledger, then the working process is going from two million three forty nine Five down by the one million eight sixteen five two The five thirty three and that of course ties out to the trial balance the finished goods then it's going to be debited So it's going to go from the six uh sixteen up by the one million eight sixteen five to the two million four thirty two Five that two million four thirty two five here on the finished goods There then we're going to have the sale so we're going to rate record the sale process That's going to happen. So we have sales of two million five hundred finished goods inventory of 176 001 so the journal entry here now when we think about the sale This is often confusing because we haven't been dealing with the sales side of things We've only been dealing with the cost So when we get to the end of a problem oftentimes we see the sales number and we forget the part of the journal entry That's the basic part of the journal entry way back and even a service industry Has the same journal entry here, which would be if we sold it on account debit to accounts receivable Credit to some type of income in this case sales. That's just the normal recording of Sales that sales number the two million five hundred has nothing to do with the cost that we have been doing The cost process we've been doing might be used to somehow derive that number the sales price But we've been working on the actual cost just the cost of the goods The sales price would have to normally be given within the problem and we'd have to derive it in real life Of course somehow based on the What our costs are we'd have to mark it up in some way Then we need to think about the cost of goods sold the other half of the journal entry is of course Taking the inventory out of finished goods and recording the related expense that related expense called cost of goods sold Therefore we're going to have to do the cost of goods sold calculation And so in order to do that we're going to say the beginning finished goods inventory plus Not purchases, but this is the one million 816 five that we calculated on the last slide for cost of goods manufactured That's the difference in the cost of goods sold calculation when we talk about a manufacturing company as opposed To just a merchandising company that buys and sells we don't purchase the goods We make them we therefore have to do the cost of goods manufactured calculation In order to plug that into where the purchases normally go in the cost of goods sold calculation That will give us the cost of goods available Then we're going to subtract from that Let's the finished goods inventory. Again, they gave us the we're going to this problem gave us that information So the problem gave us that so we got the 176 001 And therefore we're left with cost of goods sold of two million two fifty six four ninety nine That would be the cost of goods sold allowing us to do the second half of this journal entry Which would be a debit to cost of goods sold of this number And then we're going to credit the finished goods inventory So if we looked at our accounts, then of course, we've got the finished goods inventory is going down from two million four thirty two five By the two million two fifty six four ninety nine that we calculated here that gives us the 176 001 This is recorded in the entire, you know process for the for the entire period basically And the debit would be to the cost of goods sold that we show here It would have a gl account, but we're not showing the gl account on this because we're just looking at the