 Hello, in this lecture we're gonna work some smaller test type problems problems that could be small enough to fit in multiple choice type problems. So here we have using the following accounts and an overhead rate of 150% of direct labor cost compute the amount of applied overhead. First, a word from our sponsor. Well, actually these are just items that we picked from the YouTube shopping affiliate program, but that's actually good for you. Because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased, and used ourselves. Acer 27 inch monitor. I've been using an Acer monitor as my primary monitor for a few years now. Now this is the first Acer monitor that I have used after having used a series of different brands of monitors in the past. The Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor. I have a 27 inch monitor which I think is ideal for what I do, which is of course the screen recording and the editing. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model given you access to all the courses. Courses which are well organized have other resources like Excel files and PDF files to download and no commercials. So we've got our work in process. This is basically our debits and our credits, our t-account or our general ledger account for work in process. And we have the finished goods, same thing. We've got the debits and credits, basically the t-account or the general ledger for finished goods. Now this is going to be a classic kind of book type, multiple choice type smaller problem because we're going to have to back into this information in kind of a funny way and do a bit of algebra to figure this one out. So if we think about this, we can see that these two are the unknowns here, but we have two unknowns and we see we have a debit, debit, and then we have these two debits minus minus the credit here that goes out to finished goods. That will give us the ending balance. So if we were to think about this, it would be this plus this plus the debit here plus the debit here minus the credit that went out to finished goods. That would give us our ending balance. So we can think about that in terms of a formula. If we write that out linearly, we could say, well, it's the 34, 400 of the beginning balance plus the 54, 600 direct material plus the unknown for direct labor, which we're just going to put DL, that's just one variable, direct labor plus the unknown of the overhead, overhead, one variable overhead. And then we're going to take that minus the 183, 300, they got transferred to a finished goods. And that's going to equal the 24, 400. Now that, of course, we have a problem here because we have two unknowns. We have two variables that are not known, but we can at least get those two variables on one side of the equation, meaning we're going to move all everything else to the other side. So we've got the 24, four minus we have a negative 183. So we're going to add that to both sides. So then here's a 54, six, we're going to subtract that from both sides. And here's the 34, four positive, we're going to subtract that from both sides. So obviously what we're doing is we're subtracting out from this side, the 34, 400, we're subtracting out the 54, 600. We're keeping these on the left hand side, we're going to add the 20, the 183, 300 to get rid of that. And then on the other side, we're just going to have to put this on the other side of the equal sign, same thing, where we're just going to take this same thing, just copy it, I'm just going to copy that, and that'll be put over here. So if we rewrite that, then it'll look like this. So it would look like this, we've got the two variables, direct labor and overhead on the one side, and then we just got numbers on the other side. So now we could plug that into the calculator and just do the calculations. So it would be 24, 400 minus the 34, 400 minus the 54, 600 plus 183, 300 gives us the 18, 700. So now we have this but of course we have two variables here and we want to break this down to get both the direct labor and overhead separated. And that's when we're going to use this using the following count, the overhead rate is 150% of the direct labor. So remember what overhead is is that allocation of all that stuff in the bucket and we often use direct labor in order to allocate. So if we if we think about that, then what's on this side, we've got direct labor, and then what we have plus that direct labor times, we can just put times or we can just put it right next to it 1.5. So that's what we have on this side equals the 118, 700. And that allows us to have just the one variable now. And then in order to calculate that, I think we're going to have to factor to do that. So there's a direct labor and a direct labor one variable in both of those. So we can pull that out and say direct labor times. And then if we pull that out of this one times the direct labor times one would be the direct labor. And then we're going to say plus, and this one has a direct labor times 1.5, 1.5 brackets equals 1187, put a comma there 700. And now we could just add those two up. So now it's direct labor and it's times or we but we could just not have the times there is DL 2.5 we add those up equals the 1187. And then we can solve for direct labor, we're going to divide each side by the 2.5. So now direct labor equals, and I'm going to put this over here, it's going to equal the 118700 divided by 2.5. So that's going to be our last calculation to solve for direct labor. And if that's the direct labor, then remember that direct labor is now 47480 plus the overhead, if we don't know that is going to then equal the 118700. And so if we solve for overhead, that's basically going to be a subtraction problem of 118700 minus this amount we just calculated. And that'll give us the difference. So if we add those two up to double check it comes out to 1187, the 1187 that they both added up to. So again, that's one of the more complicated type of multiple choice type questions where we're backing into things in a bit different way than we may do in real life. Next one says a company uses a job order costing system and last period incurred 74,000 of accrued overhead and 100,000 of direct labor company estimates that its overhead next period will be 81,000. It also expects to incur 100,000 direct labor. If company bases applied overhead to direct labor cost, its predetermined overhead rate would be what? So remember what we're doing here, we're trying to figure out what the overhead would be overheads all that stuff we put into the bucket that we couldn't apply to a particular job in this case, we're going to use direct labor to determine how large these all these different jobs are in order to help us to allocate the cost that we then put into this overhead bucket. So therefore, if we if we think that, then we're going to say that the total overhead that we estimate estimate is going to be the 81,000. And we think that the direct labor is going to be the 100,000. So if that's the case, then if we were to use a rate to allocate based on to allocate overhead based on direct labor, we would just take the 81,000 divided by the 100,000. And that's not quite one because we're gonna go to the home tab numbers, add decimals, and we come up to 81, or we can make it a percent 81%. And what's going to happen then is that every direct labor that we applied to a job will multiply times 81%. And that's going to be the rate that we are going to use. If at the end of the year, we came up with these exact direct labor hours, and the exact actual overhead spent, then it would be applied out perfectly. But of course, it is just an estimate. So we're estimating here and applying out the overhead based on that estimate as we go.