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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 two components of manufacturing overhead variances are the overhead controllable variance and the overhead volume variance. As with direct cost variances, the late Dr. Charles Horngren developed a matrix format to simplify the calculation of overhead variances.