Under-absorption of overheads from low volume or high expenditure Steps: - Identify under-absorption: occurs when absorbed overheads (predetermined rate × actual activity) < actual overheads incurred. - List causes: (1) budgeted activity > actual activity (volume shortfall); (2) actual overheads > budgeted overheads (expenditure overrun); (3) predetermined rate too low due to overestimation of activity; (4) inefficiencies not captured in rate. - Match to options: C combines (2) high actual overheads and (3) low actual activity, both directly causing under-absorption. - Confirm via formula: Under-absorption = actual overheads - (overhead rate × actual hours/units). Why C is correct: - Ties to absorption costing formula where under-absorption variance arises from expenditure variance (actual > absorbed due to higher costs) and volume variance (lower output reduces absorption). Why the others are wrong: - A: Includes (1) which causes under-absorption but pairs with (3) that's redundant or incorrect as rate misestimation alone doesn't always lead to under-absorption without volume/activity mismatch. - B: (1) and (4) both relate to planning errors but (4) inefficiencies may cause over-absorption if not adjusted, not consistently under. - …