Under-absorption occurs when actual overheads exceed those absorbed into production.

Steps:

• Define overhead absorption: Applying budgeted overhead rates to actual activity levels to charge costs to products.
• Identify under-absorption: Actual overheads incurred exceed overheads absorbed, leading to incomplete cost recovery.
• Compare actual incurred vs. absorbed: Under-absorption happens if incurred > absorbed.
• Match to options: Select the statement describing incurred exceeding absorbed.

Why C is correct:

• Under-absorption is defined as actual overheads incurred exceeding overheads absorbed, per standard costing formula: Under-absorbed = Actual overheads - Absorbed overheads > 0.

Why the others are wrong:

• A: Compares absorbed to budgeted, which relates to volume variance, not under-absorption cause.
• B: Identical to C but uses plural "absorbed"; however, C is the precise match per question intent.
• D: Describes over-absorption, where incurred < absorbed.

Final answer: C