Overheads Absorption Variance

Steps:

• Calculate predetermined rate: budgeted overheads ÷ budgeted machine hours = 16820 ÷ 16820 = $1 per machine hour.
• Calculate absorbed overheads: $1 × actual machine hours 7590 =$7590.
• Compare to actual: absorbed $7590 - actual$5590 = $2000 (over-absorbed).

Why D is correct:

• In absorption costing, over-absorption is absorbed overhead minus actual overhead when positive; formula yields $7590 -$5590 = $2000 over-absorption.

Why the others are wrong:

• A: Over-absorption amount is $2000, not$1000.
• B: Direction is over-absorption, not under-absorption.
• C: Direction is over-absorption, not under-absorption.

Final answer: D