Over-absorption from higher absorbed vs. actual overheads

Steps:

• Calculate overhead absorption rate as budgeted overheads divided by budgeted direct labour hours.
• Compute absorbed overheads as absorption rate multiplied by actual direct labour hours.
• Compare absorbed overheads to actual overheads incurred: excess indicates over-absorption.
• Identify causes: lower actual overheads or higher actual hours than budgeted lead to over-absorption.

Why B is correct:

• Over-absorption arises when actual overheads < budgeted (cause 1) or actual labour hours > budgeted (cause 2), per the formula absorbed overhead = (budgeted overhead / budgeted hours) × actual hours.

Why the others are wrong:

• A includes cause 3, which likely increases under-absorption (e.g., higher actual overheads).
• C pairs cause 1 correctly but adds incorrect cause 3.
• D omits cause 1 and includes wrong cause 3.

Final answer: B