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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 difference between the actual cost of $156 and the standard cost of $160 agrees to the sum of the two variances: Actual variable manufacturing overhead costs are debited to overhead cost accounts.The credits are made to accounts such as Accounts Payable.his is referred to as an unfavorable variable manufacturing overhead efficiency variance. Variable Manufacturing Overhead Spending Variance. In the analysis above, item 2 shows that based on the 50 direct labor hours actually used, electricity and supplies could reasonably add up to $100 instead of the standard of $84.