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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 Cost Variance. An overhead cost variance is the difference between the amount of overhead applied during the production process and the actual amount of overhead costs incurred during the period. The overhead cost variance can be calculated by subtracting the standard overhead applied from the actual overhead incurred during the period.