Overhead absorption variance

Steps:

• Absorption rate = budgeted overheads ÷ budgeted hours = $25,000 ÷ 15,000 =$5/3 per hour.
• Absorbed overheads = rate × actual hours = ($5/3) × 16,000 =$26,667.
• Over/under absorption = absorbed overheads - actual overheads = $26,667 -$25,000 = $1,667 over absorbed.

Why C is correct:

• Statement C is incorrect because the over absorption is $1,667 (from volume variance formula: rate × (actual hours - budgeted hours)), not$500.

Why the others are wrong:

• A: Over absorption is $1,667, not$4,500.
• B: Overhead absorption is over (actual hours > budgeted hours), not under.
• D: Overhead absorption is over (actual hours > budgeted hours), not under.

Final answer: C