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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 favorable overhead yield variance is the same as for the three variance approach and can be viewed as consisting of $300 variable cost [(3,850 standard hours allowed for expected output 4,000 standard hours allowed for actual output) $2], and $450 fixed cost [(3,850 4,000) $3].