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Chilton allocates variable manufacturing overhead costs on the basis of machine hours. Chilton budgeted .5 machine hours per lamp and allocates overhead at a rate of $1.80 per machine hour. Last year Chilton manufactured 23,000 lamps, used 13,800 machine hours and incurred actual overhead costs of $15,180.
The right panel of Figure 10.9 Possible Causes of Variable Manufacturing Overhead Variances for Jerryâs Ice Cream contains some possible explanations for this variance. Again, this analysis is appropriate assuming direct labor hours truly drives the use of variable overhead activities.