Under/Overhead Absorption via Capacity Variance Steps:

• Calculate absorption rate: actual overheads ÷ budgeted machine hours = $296,000 ÷ 50,000 =$5.92 per machine hour.
• Identify unused capacity: budgeted machine hours - actual machine hours = 50,000 - 46,000 = 4,000 hours.
• Compute under absorption: unused hours × absorption rate = 4,000 × $5.92 =$23,680 (approximately $23,000).
• This measures overheads not recovered due to lower activity using actual overheads spread over budgeted capacity.

Why A is correct:

• It matches the capacity (volume) variance formula for under absorption: (budgeted activity - actual activity) × (actual overhead rate based on budgeted activity), indicating $23,000 unrecovered overheads.

Why the others are wrong:

• B: Ignores activity shortfall; actual overheads lower but not by only $2,000 over recovery.
• C: Confuses total overhead difference ($350,000 -$296,000 ≈ $54,000) with absorption variance.
• D: Minor miscalculation; no basis for small $1,000 over absorption.

Final answer: A