Fixed overhead over absorption due to higher actual labour hours

Steps:

• Determine absorption rate: budgeted overheads ÷ budgeted hours = $75,000 ÷ 15,000 =$5 per hour.
• Compute absorbed overheads: $5 × 16,000 actual hours =$80,000.
• Find over absorption: absorbed overheads - actual overheads = $80,000 -$75,000 = $5,000 over absorbed.
• Confirm direction: actual hours exceed budgeted hours, leading to over absorption for fixed overheads.

Why C is correct:

• Over absorption equals absorbed overheads minus actual overheads per standard costing formula, yielding exactly $5,000.

Why the others are wrong:

• A: Wrong amount ($4,500 instead of$5,000).
• B: Wrong direction (over absorbed, not under).
• D: Wrong direction and amount (over by $5,000, not under by$5,000).

Final answer: C