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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.
- Overhead. Absorption costing is a process of tracing the variable costs of. production and the fixed costs of production to the product. Variable Costing traces only the variable costs of production to the. product and the fixed costs of production are treated as period. expenses.