 In this presentation, we're going to apply overhead to jobs. Let's get into it with Intuitz. QuickBooks online. Here we are in our job costing dashboard. We're going to start off by going over to our Excel file so we can see an example of what our objective will be. Here we are. We are on EX 1.2. If you want to enter these into the Excel file, you can go to 1.20 on the blue area, but we're going to be over here in the 1.20 and just look at the example. So the next thing we have is we've got these items where we're going to apply out to the overhead. Now note that as we apply out the overhead, the typical thing you would think in a job costing problem in a bookkeeping problem or a textbook type problem is that we would put all the overhead, all the things that we couldn't directly apply to the job into a overhead type of account and then allocate that overhead type of account out at a later point in time. But however, what we're going to do here is we're going to take a look at that factory overhead and do our best to allocate it as we enter it into the system. As we incur then the overhead, we're going to have to give some kind of allocation process. So that would suggest then that we're going to need some kind of allocation measure as we incur the overhead so that we can record it to cost a good sold. Otherwise, if that wasn't the case, if we could not do that, then we could do a similar process as we did up top. We could record the overhead into like we did with the raw materials but instead of raw materials, we put it into the factory overhead type of account and then we can allocate it out using a similar method that we did for the factory overhead using something that they would call like a predetermined overhead rate. So that's going to be the essential problem with overheads. So remember that the essential problem with overhead is that we couldn't apply it directly to a job. Therefore, we have to use some type of allocation method to apply the overhead to the jobs. We can't directly apply it. We don't know exactly what jobs they go to. So we have to use some kind of allocation method to do so. We're going to be allocating directly as we incur the overhead simply to the cost of good sold and as we do so, applying it to the job. So everything that falls into that bucket, everything that can't go into overhead, we'll go into, can't go into the job specifically. We have to put it into this bucket or consider and think of it in terms of overhead, which we're going to use as some kind of allocation method. So for example, number 16, or we're on this item on the 20th, indirect labor paid and assignment to factory overhead. So if we have indirect labor, that would be a situation where we can't assign it directly to the job because maybe we have someone working in the warehouse supervising or something like that and they're supervising everyone. And therefore we have to allocate their time in some way to a job, as opposed to being able to assign it directly to a particular job as is the case with direct labor. So in this journal entry is always going to be the same. We're going to put it into the cost of good sold and we're going to credit cash. We're going to consider this person kind of like a contractor again and we would debit cost of good sold and credit the cash. Then when we put it into the overhead or into the jobs, we'd have to use some kind of allocation method to apply it out to the job. So this allocation method, we're going to say, we're going to apply it out by 1933 and 48 to the open jobs. And you can see this is our, we can see different methods you can use for the allocation or how are you going to figure out which job to apply it to. Some jobs will be bigger than other jobs. And that's, so if you look at the estimates then, you could basically have your open jobs or something like that. You can try to figure out what the best type of allocation will be considering the jobs have different sizes it won't typically be a one-third, one-third, one-third in our case with three jobs allocation, but rather have some kind of method and activity driver for the larger jobs. The larger jobs usually you would think would be consuming more of the kind of overhead type of allocations. The more precise on the overhead you get, the better your allocation will be, but that's going to be the details of it. So we're going to be using the 19, the 33 and the 48 for job 14, 15 and 16 respectively. So we're going to take that amount and allocate it out according to those percentages. And if we do so, and we add these three items up, then it's going to add up to that 9,380. The 9,388, which of course is going to be the amount here. It's not that amount, hold on. Let me add those up again. The 2660, the 4620 and the 6720 adds up to the 14,000, and that's the amount we're looking for. So that's going to be, we're going to have a similar method for all of these kind of overhead type of problems. So for example, that was the indirect labor. If we had the amounts applied to overhead for indirect materials, this would be materials that aren't the large materials that we can apply directly to the job, but maybe think like grout or glue or things like that, that we're going to buy in some and we're not going to be able to apply them directly to the job, but we'll use some type of allocation method in order to do so. We can use some kind of allocation method and just note some of the problems with this type of thing. If you bought like glue and you bought all years worth of glue or something like that or grout or something like that, then obviously it'll, it might be serving jobs into the future. That's why you might use some kind of allocation method and you might then apply it first into the factory overhead and then use a predetermined factory overhead rate to apply it out to the particular jobs. Or again, you can try to figure out how you want to apply it out to the jobs basically as you go. So that's going to be your methods that you can have to think of. Journal entry is the same. It's going to increase the cost of goods sold more specifically the cost of goods sold related to that factory overhead piece, the glue that then you're going to have to apply out using some type of method, that we're going to use when we apply out the glue, we'll once again be taking that and applying it out with some type of ratio percentage. We're going to say the 19, the 33 and the 48 for our practice problem. So we can go through all the other overhead areas and that's going to be something like utilities. If they're utilities on like the factory, then we do all of our jobs or do some part of our jobs within the factory. Then we would have to then apply that out in a similar fashion, same kind of journal entry and then apply it out using our percentages. Anything that's like factory rent, anything that we use in our factory, our production area, then that's going to be a similar process that we'll have to apply out depreciation. If it's depreciation of the equipment that we use on various jobs and we don't know how much time was applied to each job, we're going to have to then similar method for the allocation of that as well. So let's think about those in Excel. So we're going to start off with this one and this is going to be the indirect labor. So we'll go for the indirect labor and let's go back on over here. We're going to make a new and we'll make an expense item. So we're going to make another expense item for the indirect labor. Going to open that up and we're going to say this is going to be going, I'm going to say it's a contractor again, contract or two, but it's a similar concept as we did with the contractor. One, when we talked about direct labor, if it was payroll, in other words, you can kind of do a work around here where you'd basically make that zero expense to allocate it out. We're going to assume it is a contractor here that we're actually paying and therefore it's going to be decreasing the checking account. Then the date is going to be the 20th. Let's make the date the 20th. So I'm going to say plus, plus, plus, plus, plus, plus and that's it. That's all the pluses we need. And then this is going to be cash or check. And down here, I'm going to set up an item. So we're going to be adding an item. So I'm not going to go to the category. I'm going to close the category. I want to go down to the items and I'm just going to set up an item for indirect labor. So I'm going to set up another item. We don't have one yet. I'm going to call it indirect labor and say tab. It's going to ask us to set it up. I want to make it a non-inventory item so that I can use those double-sided or two-sided items. I'm going to then copy the name. I'm going to say copy that name. We're going to bring it on down to the description and paste it there in the description. We'll paste it down here on the purchase information as well for the expense account. If we see the expense accounts within the cost of goods sold section, you'll recall we had overhead. Now I would like to make another subcategory of overhead making overhead basically the parent account and now make this a subcategory for the indirect labor. Note this is just for informational purposes here that there's going to be a problem in that we should have the indirect labor as the sub-account of overhead. We're actually going to enter it shortly incorrectly as a sub-account of the labor account. That's not where it should go. It should be in the overhead. I'm going to keep it there instead of going back and editing it so we can see it going to the wrong sub-account. Then we'll take a look at it on the income statement and then we'll see how to come back over here to the chart of accounts and fix an error like that and see what the difference will be on the income statement. So if you want to set up the account properly and not do that adjustment, then you want to make it the sub-account of the overhead account, not the sub-account of the labor account. To do that, I'm going to make another account here. I could just type it in. I'm going to call it indirect labor. And then tab. And then it asks me to set it up. The account type is going to be cost of goods sold. And then labor, we can keep that. That's fine. That doesn't have much effect, that detail type. And then that looks good. I want to make it a sub-account. This is kind of in 4-9 most missed it. I want to make it a sub-account, however, of the cost of goods sold accounts for labor. So that's the one. That should do it. Then let's say save and close and save and close. So that was kind of a lot we did there because we set up an item and an account at the same time. And then I'm going to break these out by job now. So I'm going to go back on over to our jobs over here where we have the 2660, which is job number 14. So let's do that one first. So 2660. And that's going to be billable. So check that off for job number 14. And then I'm going to do this again, indirect. That's spelled wrong, indirect labor. And this is going to be for the amounts of, we're picking up the 4620, 4620. So we're going to say 4620. This is going to be billable. So we'll say it's billable. And this is going to be job number 15. Job number 15. Let's do it again. We're going to say then we have indirect labor. And this is going to be for the amount of, picking up the next amount. This is going to be down here. This is going to be 6720, the 6720. So let's pick that up, 6720. And that'll be billable. That'll be for job number 16. So there we have that. And then if I scroll up, note that again, if you process the payroll, you can do the same little trick here that it would already be in wages. I'm not going to do this now, but I'll just to show you, if you went to the employee information up top or wages like the other expense account salaries and wages, assuming the payroll went there and then put in a negative 14,000, then you would basically take it out of one expense account, put it into another expense account, have no net effect and be able to apply out this information to the jobs in that format. So that's one method that you can use for that. What's this going to do when we record it? I deleted that. So delete that if you're practicing going to the practice problem. It's going to then go to the account for the cause to get sold account here based on driven by these items. And it's also going to be applied to the job or project that we're looking at and it's going to be decreasing, of course, the checking account. Let's take a look at it. Let's say save and close. And then we'll open up our financial statements. So let's go on down to the reports on the left hand side. That's where the financial statements are and the financial statements include the balance sheet. So let's open that one up. That's an important one as we know. I'm going to hold down control. I closed the hamburger and then I'm going to hold down control and then we have the checking account. Let's go into the checking account and see what's happening there. And the checking account, we have this 14,000 now decreasing. If we select that 14,000, then we're going to see that 14,000 decrease there. Let's close that back up and scroll on up to the top again, scroll in on up, scroll in on up. And then the other side's going to be on the income statement. So I'm going to duplicate the tab. So let's go up and hover over the tab up top, right click on it, duplicate that tab, put in the balance sheet on the right hand side. We'll go on back to the left hand side to do other stuff by opening up the hamburger or like opening up the hamburger so that we can go down to the reports again, open up our second favorite report or other favorite report. They're both really good, obviously. Like the financial, that's going to be the PNL, the profit and loss, the income statement. Can I then close up the hamburger up top? And then what we have in the profit and loss is going to be the new thing we had. We're looking at the new thing here is going to be the, there it is, the indirect labor, the indirect labor of that 14,000. So now we could scrunch up the cost of goods sold and it's at the 582. That of course matches the 582 on the balance sheet down below for the net income number. And then if I go back on over, we can also expand the cost of goods sold and then we've got the direct, we got the labor and the material, basically direct labor and materials at this point in time. And notice I should have put this indirect labor into overhead and not labor. So this should be only direct labor, the other should go into overhead. I messed up on the item. So let's go ahead, what I'm going to do is I'm going to go in and show us how to fix this. So I'm going to right click on this tab up top. I'm going to duplicate this tab. Then I'm going to go back to the tab to the left. I'm going to open up the hamburger. We're going to go down to the, let's hold down control, scroll back down a bit to get back to that 100%. I'm going to go to the accounting area down below. If we go to the accounting, we're going to take a look at our chart of accounts. I'm going to close up the hamburger. Once I'm in the chart of accounts up top, I'm in the chart of accounts. And if I scroll then down, here's where the problem is at. So when I go down to the labor and the cost of goods sold section, I put the indirect labor as a sub account of the labor. And that's not right. It should be the sub account of the overhead accounts. So it should be sub of the overhead. So let's edit this. I'm going to go on over and this is totally fixable. I haven't ruined anything here. We're going to go to edit. And then I'm going to go to the cost of goods sold. That's going to be the account type, the sub account, not labor here, but overhead. So let's go ahead and change that. And where's the overhead? Cost of goods sold. We've got the materials. And then we have the overhead. So there it is. That's the one. Let's do that. That should fix it. We're going to say save and close now. And there we have it. So now let's just check it out. So now overhead, it's a sub account of overhead. Now let's see what happens. It should change the P&L for us. Let's go back on over to the P&L, the profit and loss and update that. So I'm going to go back up and just run the report again. And then I'll close up the old hamburger. And let's try this again. Let's try focusing on this again. So now we have the cost of goods sold and we have the labor, which is just direct labor. We've got the materials. And then we have the overhead. So then we have the overhead. Now we have our three major components, the labor, the materials and the overhead. If we were to expand the materials, then we've got the detail in there. And again, same kind of thing with the overhead, we can expand it and now have the other types of items in that one as well. So that little detour took a little bit more time than I was expecting. So let's go ahead and stop it here. And then we'll continue on with the overhead next time. So that's going to be it for now. Let's get out of here.