A Level Accounting (9706)•9706/13/O/N/19
Explanation
Under/Overhead Absorption via Capacity Variance Steps:
- Calculate absorption rate: actual overheads ÷ budgeted machine hours = 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 × 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 (296,000 ≈ $54,000) with absorption variance.
- D: Minor miscalculation; no basis for small $1,000 over absorption.
Final answer: A
Topic: Traditional costing methods
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