Overhead absorption variance calculation Steps:

• Calculate absorption rate: budgeted overheads ÷ budgeted direct labour hours = 120,000 ÷ 10,000 = $12 per hour.
• Calculate absorbed overheads: absorption rate × actual direct labour hours = 12 × 8,000 = 96,000.
• Identify actual overheads incurred: 100,000.
• Determine variance: actual overheads - absorbed overheads = 100,000 - 96,000 = 4,000 under absorbed.

Why A is correct:

• Under absorption is defined as actual overheads exceeding absorbed overheads (using predetermined rate × actual activity); here, 100,000 - 96,000 = 4,000, matching A's under absorption figure.

Why the others are wrong:

• B: Incorrect sign; variance is under, not over absorption.
• C: Confuses with volume variance of (10,000 - 8,000) × 12 = 24,000 adverse, but total is net 4,000 under.
• D: Volume variance alone (24,000 under recovery from lower activity), ignoring favorable expenditure variance of 20,000.

Final answer: A