Question

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?

Answer 1

$2.90

Step-by-step explanation:

Budget:

No of machine hours = 23,000 lamps × 0.4 machine hours per lamp = 9,200 machine hours

Overhead cost of lamps produced = $1.80 × 23,000 lamps = $41,400

Therefore, budgeted rate = $41,400/9,200 = $4.50 per lamp

Actual:

Total no of machine hours used = 161,000 machine hours

Total cost of actual overhead incurred = $257,600

Therefore, actual overhead rate = $257,600/161,000 = $1.60

Variance:

Variable manufacturing overhead rate variance last year = $4.50 · $1.60 = $2.90

Answer 2

-$32,200 favorable

Step-by-step 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