5- 60 Controllable and Volume Variances Learning Objective P3: Compute overhead spending and efficiency variances. Overhead cost variance (OCV) = Actual overhead incurred (AOI) − Standard overhead applied (SOA) Exhibit 21.15 • Total Overhead Variance: Actual total overhead incurred − Standard total overhead applied – Overhead Controllable Variance: Actual total overhead incurred – Budgeted total overhead. – Overhead Volume Variance: Budgeted fixed overhead – Applied fixed Overhead © McGraw-Hill Education. 21-60
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3-40 Overhead Variance Assume Assume Glass Glass Creations’ Creations’ actual actual overhead overhead for for the the year year was was $370,000 $370,000 for for aa total total of of 13,000 13,000 direct direct labor labor hours. hours. How How much much total total overhead overhead was was applied applied to to jobs jobs during during Overhead is Use overapplied the the year? year? Use Glass Glass Creations’ Creations’ predetermined predetermined for the year by$30.00 overhead rate overhead rate of of $30.00 per per direct direct labor labor hour. hour. $20,000. What will Glass Creations do? SOLUTION SOLUTION Applied Applied Overhead Overhead == POHR POHR ×× Actual Actual Direct Direct Labor Labor Hours Hours Applied Applied Overhead Overhead == $30.00 $30.00 per per DLH DLH ×× 13,000 13,000 DLH DLH == $390,000 $390,000
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Overhead Variances Example DR, Inc. provided the following information for overhead: Actual variable overhead = $14,500 Actual fixed overhead = $8,200 Budgeted variable overhead = $14,000 per unit Budgeted fixed overhead = $4 per unit Budgeted units produced = 2,000; Actual units produced = 2,040 DR applies overhead based on the number of units produced. Calculate the overhead rates: Variable overhead rate = Estimated variable overhead Estimated units to produce = $14,000 2,000 = $7.00 per unit Fixed overhead rate = Estimated fixed overhead Estimated units to produce = $8,000 2,000 = $4.00 per unit
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3-39 Overhead Variance Assume Assume Glass Glass Creations’ Creations’ actual actual overhead overhead for for the the year year was was $370,000 $370,000 for for aa total total of of 13,000 13,000 direct direct labor labor hours. hours. How How much much total total overhead overhead was was applied applied to to jobs jobs during during the the year? year? Use Use Glass Glass Creations’ Creations’ predetermined predetermined overhead overhead rate rate of of $30.00 $30.00 per per direct direct labor labor hour. hour. SOLUTION SOLUTION Applied Applied Overhead Overhead == POHR POHR ×× Actual Actual Direct Direct Labor Labor Hours Hours Applied Applied Overhead Overhead == $30.00 $30.00 per per DLH DLH ×× 13,000 13,000 DLH DLH == $390,000 $390,000
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Journal Entries for Multiple Departments     Work in Process – Blanking Work in Process – Forming Work in Process – Finishing Factory Overhead  Work in Process – Blanking Work in Process – Forming Work in Process – Finishing Factory Overhead       xx xx Work in Process – Forming Finished Goods  xx Work in Process – Blanking Work in Process – Finishing  xx Work in Process – Finishing xx xx xx Record Factory Overhead Work in Process – Blanking Work in Process – Forming Work in Process – Finishing     xx Factory Overhead Work in Process – Forming  xx xx xx xx Transfers to Various Departments  xx xx xx xx Payroll   xx xx Various Accounts Factory Overhead – Blanking Factory Overhead – Forming Factory Overhead – Finishing    Record Direct Labor       xx xx xx xx Materials Factory Overhead  Record Direct Materials  Factory Overhead - Blanking Factory Overhead – Forming Factory Overhead – Finishing xx xx xx xx xx xx   BLANKING  FORMING  FINISHING Department Department Department
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NEED-TO-KNOW 15-4 A manufacturing company estimates it will incur $240,000 of overhead costs in the next year. The company allocates overhead using machine hours, and estimates it will use 1,600 machine hours in the next year. During the month of June, the company used 80 machine hours on Job 1 and 70 machine hours on Job 2. 1. Compute the predetermined overhead rate to be used to apply overhead during the year. Predetermined Overhead Rate = Estimated Overhead Costs Estimated Activity Base = $150 per machine hour $240,000 1,600 machine hours 2. Determine how much overhead should be applied to Job 1 and to Job 2 for June. Job 1 Job 2 Total Machine Hours Used 80 hours 70 hours 150 hours x Predetermined OH rate x $150 per hour x $150 per hour x $150 per hour = OH Applied = $12,000 OH applied = $10,500 OH applied = $22,500 OH applied 3. Prepare the journal entry to record overhead applied for June. General Journal Work in Process Inventory Factory Overhead Learning Objective P3: Describe and record the flow of overhead costs in job order costing. Debit 22,500 Credit 22,500 © McGraw-Hill Education 26
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Applying Overhead 18-78 Question FishCo FishCo had had actual actual manufacturing manufacturing overhead overhead costs costs of of $180,000. $180,000. FishCo FishCo applied applied $192,000 $192,000 of of manufacturing manufacturing overhead overhead to to jobs jobs based based on on aa POHR POHR of of $8.00 $8.00 per per direct direct labor labor hour. hour. FishCo’s FishCo’s manufacturing manufacturing overhead overhead is: is: a. a. b. b. c. c. d. d. $12,000 $12,000 overapplied. overapplied. overhead $12,000 underapplied. $12,000Applied underapplied. Less actual overhead $96,000 $96,000 overapplied. overapplied. Overapplied overhead $96,000 $96,000 underapplied. underapplied. $ 192,000 180,000 $ 12,000
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UM Evaluation Form CONFINED SPACE EVALUATION FORM SPACE LOCATION: ___________________________________________________________ SPACE DESCRIPTION: ________________________________________________________ Complete this form for any space which may be considered a confined space. A confined space is defined as having those characteristics listed in #1 through #3 below. YES NO 1. Is the space large enough and shaped so employee can enter and work? YES NO 2. Does the space have a limited or restricted means for entry or exit? YES NO 3. Is the space is NOT designed for continuous employee occupancy? If questions #1 through #3 above are "YES", then the space is a confined space. Continue to questions A through E below to determine if and what type of permit is required to enter. YES NO A. Does the space contain, or have a known potential to contain, a hazardous atmosphere (for example, flammable vapors, toxic gases or dusts, etc.), or pipes, ducts, vents or other entry points for potentially hazardous substances, or will volatile chemicals be used, or will painting or other work that could create a breathing hazard be done? Specify potential or known hazards: ___________________________________________ ________________________________________________________________________ YES NO B. Does the space contain a material with the potential for engulfment of a worker (for example, grain, sand or water)? Specify potential or known hazards: ___________________________________________ ________________________________________________________________________ YES NO C. Does the space have an internal shape such that a worker could be trapped or suffocated by inwardly converging walls, floor or ceiling? Specify potential or known hazards: ___________________________________________ ________________________________________________________________________ YES NO D. Does the space contain other recognized safety or health hazards, such as: (check all that apply) ___ mechanical hazards; ___ exposed or vulnerable electrical wires or energized equipment; ___ restrictive entrance or exit for entrants with their work equipment; ___ special hazards related to elevation or falling; or ___ possible impediments to rescue efforts? Specify potential or known hazards: ___________________________________________ ________________________________________________________________________ YES NO E. Will welding, cutting, torch work, or other hot work be done? Specify potential or known hazards: ___________________________________________ ________________________________________________________________________ If you answered NO to all questions A through E, then the space is a Non-Permit Require Confined Space. If you answered Yes to question A, then a Hazardous Entry Permit with on-site rescue is required.* If you answered Yes to question B, then a General Entry Permit with retrieval system is required. If you answered Yes to question C or D, then a General Entry Permit is required. If you answered Yes to question E, then a Hot Work Entry Permit is required. *A General Entry Permit with off-site rescue may be used, if the space is continuously ventilated and monitored. Name: ___________________________ Signature: __________________________________ Department: __________________________________________________________________ Please return this form to OSEH, CSSB, 1239 Kipke, Box 1010. Refer questions to OSEH at 747-1142. cseval2.doc University of Michigan - Flint 4/10/96 1
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17-11 Flexible Overhead Budget Illustrated Normal costing Standard costing Manufacturing Overhead Manufacturing Overhead Actual Overhead Actual Overhead Applied Overhead Applied Overhead Actual activity Standard allowed activity × × Predetermined overhead rate Predetermined overhead rate The difference lies in the quantity of hours used
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NEED-TO-KNOW 16-4 Tower Mfg. estimates it will incur $200,000 of total overhead costs during the year. Tower allocates overhead based on machine hours; it estimates it will use a total of 10,000 machine hours during the year. During February, the assembly department of Tower Mfg. uses 375 machine hours. In addition, Tower incurred actual overhead costs as follows during February: indirect materials, $1,800; indirect labor, $5,700; depreciation on factory equipment, $8,000; factory utilities, $500. 2. Prepare journal entries to record (a) overhead applied for the assembly department for the month and (b) actual overhead costs used during the month. a) b) General Journal Work in Process Inventory Factory Overhead (375 machine hours x $20 per MH) Factory Overhead Raw Materials Inventory Factory Wages Payable Accumulated Depreciation - Factory Equipment Utilities Payable Debit 7,500 Credit 7,500 16,000 1,800 5,700 8,000 500 Factory Overhead Actual OH Incurred Ind. Materials Ind. Labor Fact. Deprec. Fact. Utilities OH Applied to Production 1,800 5,700 8,000 500 16,000 7,500 Underapplied 8,500 Learning Objective P3: Record the flow of factory overhead costs in process costing. © McGraw-Hill Education 32
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Overhead Variances Example DR, Inc. provided the following information for overhead: Actual Overhead: Variable = $14,500; Fixed = $8,200 Budgeted variable overhead = $14,000 per unit Budgeted fixed overhead = $4 per unit Budgeted units produced = 2,000; Actual units produced = 2,040 DR applies overhead based on the number of units produced. Actual VOH $14,500 FOH $8,200 = $22,700 Flexible $7 * 2,040 = $14,280 $8,000 = $22,280 Applied $7 * 2,040 = $14,280 $4 * 2,040 = $8,160 = $22,440 Overhead controllable variance Overhead volume variance $160 favorable $420 unfavorable Total Overhead Variance = $260 unfavorable
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Peace Corp’s MI in Natural Hazards, Class of 2005-2006 Adam Blankenbicker University of Rhode Island Marine-related hazards Joanne Scott Old Dominion University Volcanic hazards Jemile Erdem Lewis & Clark College Seismic hazards Ingrid Fedde Colorado School of Mines Volcanic hazards Hans Lechner Humboldt State University Landslide and slope hazards Karinne Knutsen UC Santa Barbara Natural hazards
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Self-Guided Training DVD Architecture Main DVD Menu with intro “how-to” use DVD Falls Injuries in Residential Construction Video Safe alternative 1 Safe alternative 2 Fall Hazards during site prep Fall hazards during foundation work Fall hazards during flooring work Safe alternative 1 Safe alternative 2 Safe alternative 1 Safe alternative 2 Fall hazards during framing work Fall hazards during roofing work Fall hazards during siding / bricking Safe alternative 1 Safe alternative 2 Safe alternative 1 Safe alternative 2 Fall hazards during finishing work Safe alternative 1 Safe alternative 2
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17-25 Fixed-Overhead Variances Matrix, Inc. prepared this flexible budget for overhead: Machine Hours 2,000 4,000 Total Variable Overhead Variable Overhead Rate Budgeted Fixed Fixed Overhead Overhead Rate $ $ $ 4,000 8,000 2.00 2.00 9,000 9,000 $ 4.50 2.25 The The company’s company’s actual actual fixed fixed overhead overhead for for the the period period was was $8,450, $8,450, and and itit operated operated at at aa standard standard 3,200 3,200 machine machine hours. hours. Matrix Matrix budgeted budgeted 3,000 3,000 machine machine hours hours during during the the period. period.
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5- 57 Computing Overhead Cost Variances Learning Objective P3: Compute overhead spending and efficiency variances. The difference between the total overhead cost applied to products and the total overhead cost actually incurred is called an overhead cost variance. It’s defined as: Overhead cost variance (OCV) = Actual overhead incurred (AOI) – Standard overhead applied (SOA) © McGraw-Hill Education. 21-57
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Departmental Overhead Rate Method: Fourth Step (1 of 2) Learning Objective P2: Allocate overhead costs to products using the departmental overhead rate method. Exhibit 17.7 Overhead Allocation Using Departmental Overhead Rates Departmental Overhead Rate Standard go-kart: Hours per Unit Standard go-kart: Overhead Allocated Custom go-kart: Hours per Unit Custom go-kart: Overhead Allocated Machining Dept. $60 per MH 10 MH per unit $600 20 MH per Unit $1,200.00 Assembly Dept. $20 per DLH 5 DLH per unit 100 5 DLH per unit $100.00 Totals $700 © McGraw-Hill Education. $ 1,300.00 17-22
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NEED-TO-KNOW 16-4 Tower Mfg. estimates it will incur $200,000 of total overhead costs during the year. Tower allocates overhead based on machine hours; it estimates it will use a total of 10,000 machine hours during the year. During February, the assembly department of Tower Mfg. uses 375 machine hours. In addition, Tower incurred actual overhead costs as follows during February: indirect materials, $1,800; indirect labor, $5,700; depreciation on factory equipment, $8,000; factory utilities, $500. 1. Compute the company’s predetermined overhead rate for the year. Predetermined Overhead Rate = = Estimated Overhead Costs Estimated Activity Base $20 per machine hour Machine Hours Used Assembly Dept. $20 per machine hour 375 hours x Predetermined OH rate x $20 per hour $200,000 10,000 machine hours = OH Applied = $7,500 OH applied Factory Overhead Actual OH Incurred OH Applied to Production Learning Objective P3: Record the flow of factory overhead costs in process costing. © McGraw-Hill Education 31
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Accounting for Overhead During the Period Two accounting methods • Use a single MOH control account to post both actual and applied amounts Manufacturing Overhead Preferable Actual overhead Applied overhead • Use separate accounts for the actual MOH and the MOH applied amounts Manufacturing Overhead Control Actual overhead Manufacturing Overhead Applied Applied overhead 2
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18-70 Applying Overhead Adjusting Adjusting Cost Cost of of Goods Goods Sold Sold for for underapplied underapplied or or overapplied overapplied overhead overhead Cost of Goods Overhead is: Sold is: Adjustment will: Applied overhead < actual overhead Underapplied Too low Increase Cost of Goods Sold Applied overhead > actual overhead Overapplied Too high Decrease Cost of Goods Sold
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13-21 Outsourcing or Make-or-Buy Decision Direct $$ 9.00 Directmaterials materials 9.00 Direct 5.00 Directlabor labor 5.00 Variable Thor Co. manufactures 20,000 of part 457 that 1.00 is Variable overhead overhead 1.00 ($180,000 Fixed overhead ($180,000÷÷20,000) 20,000) 9.00 currently used inFixed one overhead of its products. The costs9.00 to Common 5.00 Commoncosts costs($100,000 ($100,000÷÷20,000) 20,000) 5.00 make this part are: Unit $$29.00 Unitcost cost 29.00 Direct materials/unit Direct labor/unit Variable overhead/unit Fixed overhead Allocated common costs $ 9.00 5.00 1.00 180,000 100,000 Fixed manufacturing overhead is the cost of leasing and operating the equipment necessary to produce part 457.
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3-19 Use of Predetermined Overhead Rates The The predetermined predetermined overhead overhead rate rate (POHR) (POHR) used used to to apply apply overhead overhead to to jobs jobs is is determined determined before before the the period period begins. begins. POHR = Budgeted total manufacturing overhead cost for the coming year Budgeted total units in the allocation base for the coming period Ideally, the allocation base is a cost driver that causes overhead.
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3-22 Use of Predetermined Overhead Rates Glass Glass Creations Creations applies applies overhead overhead based based on on direct direct labor labor hours. hours. Total Total estimated estimated overhead overhead for for the the year year is is $360,000. $360,000. Total Total estimated estimated labor labor hours hours are are 12,000. 12,000. What What is is Glass Glass Creations’ Creations’ predetermined predetermined overhead overhead rate rate per per hour? hour?
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3-36 Assigning Overhead to Jobs Summary The The difference difference between between actual actual overhead overhead for for the the period period and and applied applied overhead overhead for for the the period period is is called called the the OVERHEAD OVERHEAD VARIANCE. VARIANCE.
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3-37 Overhead Variance We We compare compare the the Actual Actual Overhead Overhead to to Applied Applied Overhead Overhead Actual > Applied Overhead is UNDERAPPLIED Actual < Applied Overhead is OVERAPPLIED
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17-24 Fixed-Overhead Variances Fixed-overhead Actual fixed- _ Budgeted fixed= budget variance overhead overhead Fixed-overhead Budgeted fixed- _ Applied fixed= volume variance overhead overhead Predetermined fixedoverhead rate × Standard hours allowed
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Controllable and Volume Variances for G-Max Learning Objective P3: Compute overhead spending and efficiency variances. Overhead Controllable Variance Total overhead variance $ 650 Overhead volume variance 500 Controllable variance (unfavorable) $ 150 Overhead Volume Variance Budgeted fixed overhead (at predicted capacity) $ 4,000 Applied fixed overhead (3,500 DLH × $ 1.00/DLH 3,500 Volume variance (unfavorable) © McGraw-Hill Education. $ 500 21-61
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Departmental Overhead Rate Method: Third Step Learning Objective P2: Allocate overhead costs to products using the departmental overhead rate method. Total budgeted departmental Departmental Overhead Rate  overhead costs Total amount of departmental allocation base Machining Department  $4,200,000  $60 MH 70,000 MH Overhead Rate Departmental $600,000   $20 DLH Overhead Rate 30,000 DLH © McGraw-Hill Education. 17-21
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NEED-TO-KNOW 17-1 (3 of 4) Learning Objective P2: Allocate overhead costs to products using the departmental overhead rate method. 2. What are the company’s departmental overhead rates if the machining department assigns overhead based on machine hours and the assembly department assigns overhead based on direct labor hours? Overhead Costs - Machining Dept. $600,000   $30 per MH Machine Hours - Machining Dept. 20,000 MH Overhead Costs - Assembly Dept. $300,000   $60 per DLH Direct Labor Hours - Assembly Dept. 5,000 DLH © McGraw-Hill Education. 17-26
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NEED-TO-KNOW 17-1 (4 of 4) Learning Objective P2: Allocate overhead costs to products using the departmental overhead rate method. 3. Using the departmental overhead rates from part 2, how much overhead should be assigned to a job that uses 16 machine hours in the machining department and 5 direct labor hours in the assembly department? Overhead Costs - Machining Dept. 16 MHs × $30 per MH = $480 Overhead Costs - Assembly Dept. 5 DLHs × $60 per DLH = 300 Total Overhead Cost assigned to Job © McGraw-Hill Education. $780 17-27
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Applying Overhead Question FishCo FishCo had had actual actual manufacturing manufacturing overhead overhead costs costs of of $180,000. $180,000. FishCo FishCo applied applied $192,000 $192,000 of of manufacturing manufacturing overhead overhead to to jobs jobs based based on on aa POHR POHR of of $8.00 $8.00 per per direct direct labor labor hour. hour. FishCo’s FishCo’s manufacturing manufacturing overhead overhead is: is: a. a. b. b. c. c. d. d. $12,000 $12,000 overapplied. overapplied. $12,000 $12,000 underapplied. underapplied. $96,000 $96,000 overapplied. overapplied. $96,000 $96,000 underapplied. underapplied. 18-76
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Applying Overhead Question FishCo FishCo had had actual actual manufacturing manufacturing overhead overhead costs costs of of $180,000. $180,000. FishCo FishCo applied applied $192,000 $192,000 of of manufacturing manufacturing overhead overhead to to jobs jobs based based on on aa POHR POHR of of $8.00 $8.00 per per direct direct labor labor hour. hour. FishCo’s FishCo’s manufacturing manufacturing overhead overhead is: is: a. a. a. b. b. b. c. c. c. d. d. d. $12,000 $12,000 overapplied. overapplied. $12,000 $12,000 underapplied. underapplied. $96,000 $96,000 overapplied. overapplied. $96,000 $96,000 underapplied. underapplied. 18-77
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24-57 Overhead Variances Actual Budgeted Overhead at Applied Overhead at Actual Volume Standard Level Overhead Level Attained of Output Shows how economically Budget Volume overhead services were Variance Variance purchased and how efficiently overhead services were used. Total Overhead Contains Varianceboth fixed and variable costs.
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24-67 Recording Overhead Variances GENERAL JOURNAL Page: Date Description 5/31 Manufacturing Overhead Overhead Budget Variance Overhead Volume Variance PR Debit 1 Credit 550 50 To record overhead variances and close manufacturing overhead Overhead account is closed and both variances are recorded at end of period in the same entry. 600
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Knowledge Check 1. Which of the following is a common type of health hazard: a. b. c. d. Chemical hazards Economic hazards Electrical hazards Fall hazards a. Chemical hazards PPT 10-hr. Construction – Health Hazards 23 Created by OTIEC Outreach Resources Workgroup
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Introduction to Hazards ° Limits to pipelining: Hazards prevent next instruction from executing during its designated clock cycle • structural hazards: HW cannot support this combination of instructions • data hazards: instruction depends on result of prior instruction still in the pipeline • control hazards: pipelining of branches & other instructionsCommon solution is to stall the pipeline until the hazardbubbles” in the pipeline CPE 442 hazards.7 Introduction to Computer Architecture
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Can pipelining get us into trouble? • Yes: Pipeline Hazards – structural hazards: attempt to use the same resource two different ways at the same time – data hazards: attempt to use item before it is ready • instruction depends on result of prior instruction still in the pipeline – control hazards: attempt to make a decision before condition is evaluated • branch instructions • Can always resolve hazards by waiting – pipeline control must detect the hazard – take action (or delay action) to resolve hazards CSE 45432 SUNY New Paltz 17
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3-45 Actual Costing, Normal Costing and Standard Costing Actual Actual Costing? Costing? Normal Normal Costing? Costing? Standard Standard Costing? Costing? Actual Actualdirect directcosts costs (material (materialand andlabor) labor) are areassigned assignedto to jobs jobsas asincurred. incurred. Manufacturing Manufacturing overhead overheadis is assigned assignedto tojobs jobs when whenthe theactual actual overhead overheadamounts amounts are areknown. known. Actual Actualdirect directcosts costs (material (materialand andlabor) labor) are areassigned assignedto to jobs jobsas asincurred. incurred. Manufacturing Manufacturing overhead overheadis isapplied applied to tojobs jobsby byusing using predetermined predetermined overhead overheadrates. rates. Standard Standarddirect direct costs costs(material (materialand and labor) labor)are areassigned assigned to tojobs jobsusing usingprepredetermined determinedrates. rates. Manufacturing Manufacturing overhead overheadis isapplied applied by byusing usingpredeterpredetermined mined(standard) (standard) overhead overheadrates. rates.
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17-36 Standard Costs in Product Costing In a standard cost system: Unfavorable variances are equivalent to underapplied overhead. Favorable variances are equivalent to overapplied overhead. The The sum sum of of the the overhead overhead variances variances equals equals the the underunder- or or overapplied overapplied overhead overhead cost cost for for aa period. period.
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5- 52 Overhead Standards and Variances Learning Objective P3: Compute overhead spending and efficiency variances. Recall that overhead costs are assigned to products and services using a predetermined overhead rate (POHR): Estimated total overhead costs Estimated activity Assigned Overhead POHR Standard Activity POHR  © McGraw-Hill Education. 21-52
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5- 53 Standard Overhead Rate (1 of 2) Learning Objective P3: Compute overhead spending and efficiency variances. • Standard overhead costs are the overhead amounts expected to occur at a certain activity level. • To allocate overhead costs to products or services, management needs to establish the standard overhead cost rate. Uses a threestep process: © McGraw-Hill Education. 21-53
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5- 54 Standard Overhead Rate (2 of 2) Learning Objective P3: Compute overhead spending and efficiency variances. • Standard Overhead Rate – Step 1: Determine an Allocation Base – Step 2: Choose a Predicted Activity Level – Step 3: Compute the Standard Overhead Rate • Flexible budgets, showing budgeted amount of overhead for various levels of activity, are used to analyze overhead costs. © McGraw-Hill Education. 21-54
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5- 59 Total Overhead Cost Variance (2 of 2) Learning Objective P3: Compute overhead spending and efficiency variances. Overhead cost variance (OCV) = Actual overhead incurred (AOI) − Standard overhead applied (SOA) (OCV) = $3,650 + $4,000 − 3,500 DLH × $2.00 per DLH (OCV) = $7,650 − $7,000 (OCV) = (unfavorable) $650 To help identify factors causing the overhead cost variance, let’s analyze this variance separately for controllable and volume variances. © McGraw-Hill Education. 21-59
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5- 72 Variable Overhead Variances for G-Max (1 of 5) Learning Objective P4: Expanded overhead variances and standard cost accounting system. Variable Overhead Variance Actual variable overhead (given) …………………………………………………………………………….. $3,650 Applied variable overhead (3,500 units × I standard DLH × $1.00 VOH rate per DLH) ………………………………………………………………………………………………………… …………….... 3,500 Variable overhead variance (unfavorable) ……………………………………………………………… $ 150 Let’s split the $150 unfavorable variance into spending and efficiency variances. . . © McGraw-Hill Education. 21-72
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5- 73 Variable Overhead Variances for G-Max (2 of 5) Learning Objective P4: Expanded overhead variances and standard cost accounting system. • Spending Variance – Actual Variable Overhead Incurred  AH × AVR – Flexible Budget for Variable Overhead at Actual Hours  AH × SVR • Efficiency Variance – Flexible Budget for Variable Overhead at Actual Hours  AH × SVR – Applied Variable Overhead at Standard Hours  SH × SVR © McGraw-Hill Education. 21-73
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5- 76 Variable Overhead Variances for G-Max (5 of 5) Learning Objective P4: Expanded overhead variances and standard cost accounting system. Actual Flexible Budget Flexible Budget Applied Variable for Variable for Variable Variable Overhead Overhead at Overhead at Overhead at Incurred Actual Hours Actual Hours Standard Hours AH  AVR 3,400 hrs. $1.00 3,400 hrs. $1.00 3,500 hrs. $1.00  $3,650        $3,400        $3,400         $3,500     Spending Variance Efficiency Variance $250 Unfavorable $100 Favorable                              Variable OH Variance $150 Unfavorable © McGraw-Hill Education. 21-76
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