 First, we want to take a look at the process for overhead, the process of recording overhead, the process of allocating overhead to jobs, it being a bit more complex than the allocation of direct labor and direct materials. First, we're gonna set up a predetermined overhead rate. We'll talk more about the process for doing that, but this predetermined overhead rate will help us to assign what's in overhead to particular jobs. It'll help us move from overhead to particular jobs. We need to do it at the beginning of the process so that we can then use it in order to allocate overhead to jobs as we go through the current time period. We're then gonna record actual overhead, actual overhead that we have during the process. Remember what actual overhead is, it's gonna be the cost of anything that we can't apply to a job. So anything related to the manufacturing process that we cannot apply directly to a job, indirect materials, indirect labor, anything related to the warehouse that we can't apply directly to a job like depreciation, like utilities on the warehouse. Then we're gonna put that into overhead. Then we're gonna apply estimated overhead to specific jobs. Now note that these two may not be going in order. In other words, as we go through a time period, we're gonna be incurring overhead as we go. Meaning we're gonna be paying for stuff, we're gonna be paying the utility bill in the factory, we're gonna be paying employees that are indirect employees that we can't apply to a particular job. As we go, and we're also gonna be applying the estimated overhead to jobs as we go. So this, we may apply overhead to a job before we record all the overhead for a time period. If we're talking about a month, then we may be applying some overhead to the job, of course, before all the overhead is recorded because the month isn't over. We're gonna be incurring overhead through the entire process. We're gonna be applying overhead through the entire process. What we want to do is set up the predetermined overhead rate so that whenever we need to apply, we can do so. And that is not necessarily dependent on whether we have recorded the actual overhead or all of it for a certain time period. And then we're gonna have to adjust the over or under applied overhead. So as we'll see the estimate, this is gonna be an estimate for us to apply the overhead to the jobs. It's not gonna match our actual amount and overhead the actual cost that we have. And therefore we will have a difference which will be under or over applied, which will have to do something with just to deal with that estimate at the end of the time period. So here's gonna be the process that we will go through. So first let's think about the costs that we'll be dealing with. And note I'm gonna do this a little bit out of order because the costs that we deal with are gonna be recording the actual costs will go together. And although we do this at the beginning, it's gonna be applied directly to this process as applying out the overhead. So first I'm gonna think about the actual costs because that's probably how you would think about how we would think about what would happen in terms of a GL account. We're gonna have costs that will be incurred. We need to then allocate those costs to particular jobs. First we'll think about materials. Now we're considering here the indirect materials. We've already looked at this at a prior presentation but we wanna just recap it here so that we know that here as we focus in on the overhead component we see it here as well. When we think about the materials leading the materials account and going somewhere else, somewhere towards production, once we start working on stuff you would think we wanna apply it to a particular job. And this is gonna be direct materials. Things that we said, hey, we want this wood if we're making guitars and we wanna apply it to this particular job and that's why. But if we have other materials such as indirect materials like glue or something like that that we're just gonna take the, we're just gonna say, hey, the warehouse needs more glue so we can work on more guitars. Then we're just gonna put that in the middle of the warehouse and we're not gonna assign it to all these guitars. We don't know which job it's gonna be working on. So this account then is gonna be indirect. So remember we could have two accounts up here. Raw materials, we might try to track them differently. We might try to track the direct materials and then have another account for indirect or we might just group them all into raw materials and then once we take them out we reduce raw materials as we'll do here and we'll record the ones that we cannot assign to a particular job. We don't have a requisition form. It's just a request from the warehouse in general or from the production department, the factory in general then we'll apply to overhead. So to look something like this we'll say that the factory overhead is what we're gonna apply to and then the raw materials is going down. So raw materials will be decreased but we're not putting into work and process because we don't know which job therefore it has to go into the factory overhead. So it'll look like this. We're focusing on this journal entry. Factory overhead is increasing going from zero up by 550 to 550. And the other side is bringing down raw materials which was at 14770 down by the 552, 147 to 20. So that's this account and this account. We moved it from raw materials not to work and process yet. We didn't know which job we had to move it first to the factory overhead. We're starting to build up this account and that's why I'm doing this first. We can see what's actually in there and then we'll apply it out. So we're gonna say, okay, now there's 550 in there. Where do we want it eventually? We want to eventually put it there. I just don't know how because we cannot do that until we know which job to assign it to. So then the same thing was with direct labor. We already recorded this but I just wanna record it again just so we know where it is in terms of the overhead. So direct labor, if we're applying the time sheets these are all time sheets that people that work in the warehouse and work in the production, the factory but these we can apply to a particular job. This is stuff that's in payroll that we could not apply to a particular job. So it's like the supervisor salary, the maintenance anything that's in there that's not working on a particular guitar in our case, we don't know which person which guitar to apply it to. It's gonna apply to some of them but we don't know which. So if we could apply them and this is part of the payroll that we applied up here we're focusing in on this item that we cannot apply and that's gonna be going into factory overhead and credit wages payable. So again, this is like a payroll this is like the payroll journal entry you know, we're paying someone payroll we're not dealing with all the others withholdings and whatnot here. We're just gonna say this is straight simplified payroll journal entry we're gonna credit wages payable you can think of cash if we were credited in cash for paying somebody and we're debiting factory overhead because they worked on the guitars they worked on the jobs but we don't know which ones we couldn't put it in the work and process. So that brings us to this point now we have 1,750 and you can note as we build up this factory overhead account we don't exactly know what it's comprised of it's comprised of all these different things now we've got some indirect materials and some indirect labor that we are putting into this account eventually we wanted to go into work and process again but we don't know which job to apply it to and that's gonna be our problem we'll have to deal with then we're gonna have all the other stuff all the other stuff that it's gonna be included in the production of inventory that we don't know exactly which job it goes to