The Chilton Corporation specializes in manufacturing one type of desk lamp. Chilton allocates variable manufacturing overhead costs on the basis of machine hours. Chilton budgeted 0.4 machine hours per lamp and allocates variable overhead at a rate of $ 1.80 per machine hour. Last year Chilton manufactured 23 comma 000 lamps, used 161 comma 000 machine hours and incurred actual variable overhead costs of $ 257 comma 600. What was Chilton's variable manufacturing overhead rate variance last year?

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Business

Holly Ortega

30 June, 06:46

The Chilton Corporation specializes in manufacturing one type of desk lamp. Chilton allocates variable manufacturing overhead costs on the basis of machine hours. Chilton budgeted 0.4 machine hours per lamp and allocates variable overhead at a rate of $ 1.80 per machine hour. Last year Chilton manufactured 23 comma 000 lamps, used 161 comma 000 machine hours and incurred actual variable overhead costs of $ 257 comma 600. What was Chilton's variable manufacturing overhead rate variance last year?

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Chelsea Cohen · Answer 1

-$32,200 favorable

Explanation:

budgeted machine hours per lamp = 0.4

standard overhead rate = $1.80 per machine hour

total output = 23,000 units

total machine hours = 161,000

actual overhead = $257,600

Overhead rate variance = (actual variable overhead rate - standard overhead rate) x actual hours worked

actual variable overhead rate = $257,600 / 161,000 machine hours = $1.60 per machine hour standard overhead rate = $1.80 actual machine hours = 161,000 hours

Overhead rate variance = ($1.60 - $1.80) x 161,000 machine hours = - $32,200 favorable