 oh and welcome to the session in which we would look at a process costing exercise that's going to take the whole process costing from A to Z from buying the material all the way to completing the product, selling the product, turning the finished good into cost of goods sold. So I'm going to go over the entries. I'm going to go over the beginning balances. So if you're not a subscriber, please copy the numbers down so you can follow with me as I'm going through this exercise. Here's what we are giving. This is the best mixed company, the cost data for the month of June. Raw material inventory May 31st 120,000. What does that mean? It means we have in raw material 120,000, which is coming from the month of June, which is that's pretty normal when you start a new month, you're going to have inventory from the prior month. Beginning work in process inventories May 31st, we have two work in process department or two departments for this company. We have the roasting department and the blending department. The work in process in the roasting department is 190,000. So we took care of the 120. We took care of the 190. And the work in process and the blending is 150,000. Both of these are inventory. Actually, all these three accounts are inventory accounts. And those are the beginning balances. And for the purpose of this company, we have two department, the roasting as well as the blending. Now, if you want to keep track of those three accounts, that's a good idea as well. The next thing we did is we purchased material on account 450,000. So when we purchase material, we are going to debit raw material. And we're going to credit since we purchase it on account, we're going to credit accounts payable. So the entry is debit raw material, credit accounts payable. And as a result, we have more material, which is an additional 450,000. Now, if you want to keep track again, that's a good idea, or you can just follow. The next thing we did is we requested material during June. 280,000 of direct material went to the roasting department. 105,000 of direct material went to the blending department. And 72,000 of indirect material was requested. Now, this is what we already have in the blending department and the roasting department from the beginning of the month. And this is how much raw material we have thus far. Now we're going to request the raw material. You have to understand that the direct material goes to work in process. So what's going to happen is this, we're going to debit work in process for 208 for the roasting department. So we're going to add 208 to the roasting department. We're going to add 105 to the blending department, and we're going to reduce raw material inventory by 385. And this is the entry. We're going to reduce raw material, because we used it up. We took it out of raw material, we gave the work in process blending some of it, and some of it went to the roasting department. Now you might be saying, how about the 72,000 that remaining that material that we requested? Now remember, this material is indirect material, not direct material. So what do we do with indirect material? Well, before we look at indirect material, whether you are an accounting student or a CPA candidate studying for the CPA exam, most likely you are watching this because you're either a student or a CPA candidate, and that's great. You are looking for some additional resources for some additional help, and you have arrived. Go to farhatlectures.com and subscribe. I can help you. I provide lectures through false multiple choice exercises that's going to help you understand the material better, which in turn you will do better on your CPA exam. I don't replace your CPA review course. I don't replace your accounting course. I can help you in addition to those resources. If you have not connected with me on LinkedIn, please do so. Like this recording. If you're watching, it means you are looking for some help. Like it, share it with other. It will help me and help others as well. Connect with me on Instagram, Facebook, Twitter and Reddit. So the indirect material, the 72,000 dollar is considered factory overhead. So what's going to happen? The 72,000, it's going to reduce raw material and it's going to go to factory overhead or manufacturing, manufacturing overhead, MOH, or simply put factory overhead. So indirect material is considered factory overhead. Now we are starting to keep track of this factory overhead. So if you want to keep track of it, now also you could also find out how much raw material inventory you have left if you are interested. Next thing we're going to look at. So basically we took care of all these figures so far. We're going to look at the factory payroll for June. Again, direct labor, the roasting department 175, direct labor for the blending 183 and indirect labor 78. Well the same concept applies. Remember direct labor and direct material goes to work in process. Indirect labor and indirect material goes to manufacturing overhead or simply put factory overhead. Let's take care of the direct labor and direct labor for blending and roasting. So we're going to increase work in process roasting, work in process blending. Therefore we're going to and we're going to credit factory wages because we incurred wages. Therefore now we have a new account called factory wages payable 385,000. We credited this account which is increasing the account. We debited work in process blending. We debited work in process roasting. So we're keeping track of work in process which is noticed practically everything is going to work in process at this point. So we took care of this figure. We took care of this figure. Now we need to journalize the 78,000. As I just mentioned the 78,000 of indirect labor goes to factory overhead. So we're going to debit factory overhead and we're going to credit factory wages payable. So notice we added more to factory overhead. Factory overhead is an important number which eventually will have to be closed out which you will see how in a moment. So now we have factory wages payable. The next thing we do we're going to pay those payable. We're going to pay 436,000. Therefore basically we closed the account. We paid 436,000 for the wages payable that we accrued. Therefore we got rid of it. So we're done with all of this. All these figures are done. All these figures are done. Actual overhead costing during June. So this is the actual overhead. Insurance expense for the factory, utilities for the factory, depreciation expense for the factory and other expenses paid in cash and those are the figures. Now why are we specifying it's a factory expenses to know that those are factory overhead. It means they are not general and administrative. Well we need to do what? We need to add to our factory overhead those totals. So we credit prepaid insurance. We credit it should be utilities payable. We credit cash and we credit accumulated depreciation and in return we are going to debit factory overhead which is adding more to factory overhead. Those are actual, those on the debit are actual cost, actual overhead cost, actual overhead cost. Also we get rid of this. Okay now the next thing we're going to look at is applying overhead because when what we do as a company we apply the overhead and this company happened to be applying the overhead at 120 percent of direct labor cost. Now if you don't know what applying the direct applying overhead is well guess what go to the prior session and you will when we talked about overhead you would know how to apply the overhead that for the purpose of this example we're applying the overhead based on the direct labor. So we look at the direct labor and wherever we spend in direct labor we assume overhead is 120 percent. So if we take at the roasting department 175 times 1, 1.2 or 120 percent we are going to apply, apply means estimate 210,000 in factory overhead. The blending, the blending will have 183 times 1, 219,600. Simply put we are going to add to work and process 210 and 219,600 and we are going to credit factory overhead to apply it. So now what's what's happening is this. Applying is what? Applying is the cost is leaving overhead and going to work and process. As I told you things will end up in work and process once it's done it will go to finished goods. So what happened is this we credited factory overhead we removed out of factory overhead some of it went to the blending and some of it went to work and process. Now remember this side the debit side of factory overhead was the actual this side is the estimate and let's see compare the actual to the estimate just kind of give you an idea whether we overestimated or underestimated. Now the estimate is 429,600 let's see the actual actual was 72 plus 78 plus 262 the actual was 412. So the actual was 412 we overestimated we're going to end up with a credit balance and you need to know what we need to do with this overestimate how do we close it again this is the topic for a separate recording which we did prior to this recording how to deal with over over applied or under applied overhead but that's not the topic here but this just kind of I'm just pointing it out. Now the best thing to do is to keep track of your balances and the work and process blending work and process roasting and work and process roasting we have in total 855,000 here's what's going to happen next 760,000 were transferred from roasting to blending because remember first we roast the product then we blend it so what's going to happen is 760 would leave here this department and we'll go into this department so we're going to credit roasting 760 and we're going to debit we're going to debit blending 760 now again we can compute the new balance if you're interested we could compute the new balance into blending and the entry will be I'm sorry the balance in blending is 1,400,000 17,600 and the balance in roasting 855 minus 760 that's we still have work and process 95,000 and the entry will be increase one one work and process which is the blending and reduce the other work and process which is roasting next now we have in blending 1,417,600 and we have finished goods inventory 330 and this is giving in case you're wondering where this number is coming from the next thing we're going to do we're going to transfer 1,200,000 from the blending to finished goods the blending is the last department therefore we're going to transfer 1,200,000 so we're going to credit blending 1,200,000 and transfer it to finished goods 1,200,000 so the entry will be debit finished goods 1,200,000 and credit blending so we're going to debit finished goods which we increased finished goods and we reduced the blending now again here you wanna you may want to know what's the what's the work and process of blending that's left and if my math is right it's 2,17,600 which is ending work and process for the blending we're not done yet now we counted ending finished goods and we find out we still have 250,000 and finished goods what does that mean it means finished goods should be 250,000 if finished goods is 250,000 the question is how much of the finished goods left us because if we the beginning was 330 then we added cost for this period which is 1,550,000 so if we end up with 250 something left us the difference is 1,250,000 so finished goods we're going to credit finished goods and it's going to go to cost of goods sold now we're not told how much it was sold for let's assume it was sold for 1,8 million it doesn't matter okay I'm just keeping track of the cost therefore the entry will be debit cost of goods sold increase cost of goods sold and reduced finished goods so basically this exercise took you from purchasing which well we had some beginning inventory to purchasing to going through the processing processing costs in each department all the way to finished goods and after finished goods some of it is sold what should you do now well you should go to farhat lectures work multiple choice through faults and exercises to help you understand how to deal with process costing process costing is an important concept whether you are a student or a CPA candidate don't short change yourself invest in yourself invest in your career it will make your life much easier down the road good luck study hard and of course stay safe