Over-absorption equals absorbed overhead minus actual incurred overhead

Steps:

• Identify over-absorption formula: Absorbed overhead - Actual overhead incurred = £4,000.
• Note "actual fixed overhead £5,000" refers to absorbed overhead based on budgeted rate and actual activity.
• Set up equation: Absorbed overhead (£5,000) - Actual incurred = £4,000.
• Solve for actual incurred: £5,000 - £4,000 = £1,000.

Why A is correct:

• Over-absorption definition requires subtracting the variance from absorbed overhead to find actual incurred costs.

Why the others are wrong:

• B (£4,000): Equals over-absorption amount, not incurred overhead.
• C (£5,000): Matches absorbed overhead, ignoring the over-absorption adjustment.
• D (£6,000): Would imply under-absorption, opposite of given over-absorption.

Final answer: A