Under-absorption of overhead occurs when:
AAbsorbed exceeds actual
BActual overhead exceeds absorbed
CStandard equals actual
DBoth equal zero
Answer & Solution
Correct answer: B. Actual overhead exceeds absorbed
1. Absorbed overhead is actual hours × predetermined rate.
2. Actual overhead is the cost actually incurred.
3. When actual exceeds absorbed, the difference is under-absorption.
4. The other side (absorbed > actual) would be over-absorption.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.6 ¶1_
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