ACCA MA · Chapter 6 · Question 7 of 11
Which of the following would cause production overheads to be under-absorbed?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Actual overhead spending was higher than budgeted, while actual activity was as budgeted
Explanation
Under-absorption happens when overheads absorbed (actual activity x predetermined rate) are less than actual overheads. If activity is as budgeted, the amount absorbed equals the budget, so spending more than budget leaves overheads under-absorbed. Higher activity or lower spending would lead to over-absorption.
More Accounting for overheads MCQs
- Q9At the end of a period, production overheads have been under-absorbed. How is the under-absorption accounted for?
- Q10Why are separate departmental overhead absorption rates usually preferred to a single factory-wide (blanket) rate?
- Q11A job uses 12 machine hours in Department X, which absorbs overheads at $22 per machine hour, and 30 direct labour hours in Department Y…
- Q1What is meant by overhead allocation?
- Q2What is the most appropriate basis for apportioning factory rent between cost centres?