ICAEW BIP · Chapter 2 · Question 12 of 12
Over-absorption of production overheads happens when:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) the overheads absorbed into production exceed the overheads actually incurred
Explanation
Over-absorption means more overhead has been charged to units of production (actual activity x predetermined rate) than was actually incurred. The surplus is credited to the statement of profit or loss. Actual overheads exceeding budget, or lower activity than budgeted, would each tend to cause under-absorption instead.
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