Overhead absorption variance using machine hours

Steps:

• Calculate predetermined absorption rate: budgeted overheads ÷ budgeted machine hours = 600,000 ÷ 60,000 = $10 per machine hour.
• Calculate absorbed overheads: $10 × 65,000 actual machine hours =$650,000.
• Calculate variance: absorbed overheads - actual overheads = 650,000 - 620,000 = $30,000 over-absorbed.

Why B is correct:

• Over-absorption is defined as absorbed overheads exceeding actual overheads in absorption costing, yielding $30,000 using the formula (rate × actual hours) - actual overheads.

Why the others are wrong:

• A. Assumes under-absorption (actual > absorbed), but absorbed exceeds actual here.
• C. $60,000 understates direction and doubles the variance amount.
• D. $60,000 overstates the calculated variance of$30,000.

Final answer: B