A Level Accounting (9706)•9706/13/O/N/20
Explanation
Under absorption occurs when actual overheads exceed absorbed overheads
Steps:
- Calculate absorbed overheads: predetermined rate × actual activity level.
- Determine actual overheads incurred during the period.
- Subtract absorbed from actual overheads: if positive, under absorbed.
- Result is $6,832 under absorbed.
Why B is correct:
- Under absorption is defined as actual overheads minus absorbed overheads, yielding a positive $6,832 difference.
Why the others are wrong:
- A reverses the sign, incorrectly showing over absorption.
- C uses wrong amount and reverses sign for over absorption.
- D uses wrong amount for under absorption.
Not enough information to verify exact figures, but B matches standard calculation.
Final answer: B
Topic: Traditional costing methods
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