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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.
Variable costs are expenses that fluctuate proportionally with the quantity of output. Variable costs are directly tied to the activities of producing volume, which rises when those activities increase and falls when activities decrease. This effect can be related to materials, labor, and sales commissions.efinition of Variable Cost. Variable costs are expenses that fluctuate proportionally with the quantity of output. Variable costs are directly tied to the activities of producing volume, which rises when these activities increase and falls when activities decrease.