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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 variable overhead spending variance is the difference between the actual and budgeted rates of spending on variable overhead. The variance is used to focus attention on those overhead costs that vary from expectations. The formula is: Actual hours worked x (Actual overhead rate-standard overhead rate).