Fixed Overhead Absorption Variance

Steps:

• Calculate predetermined absorption rate: budgeted fixed overheads ÷ budgeted hours = 150,000 ÷ 10,000 = 15 per hour.
• Calculate absorbed overheads: absorption rate × actual hours = 15 × 11,000 = 165,000.
• Subtract absorbed from actual overheads: 170,000 - 165,000 = 5,000.
• Positive difference means under absorption by 5,000.

Why B is correct:

• Under absorption equals actual overheads minus absorbed overheads (using predetermined rate based on budgeted data), resulting in 5,000 under absorbed.

Why the others are wrong:

• A: Sign error; difference is under, not over absorption.
• C: Ignores hours adjustment; 15,000 is just budgeted vs. actual overheads without absorption calculation.
• D: Correct direction but wrong amount; variance is 5,000, not 15,000.

Final answer: B