Question

Which of the following is most likely to occur where activity level is lower than that planned?

• A. An over absorption of fixed production overhead.
• B. A reduction in expenditure on fixed production overhead.
• C. An increase in expenditure on fixed production overhead.
• D. An under-absorption of fixed production overhead

Answer 1

The correct option is D An under-absorption of fixed production overhead

If overheads are under absorbed, that means that more actual overhead cost is incurred than expected, with difference being charged to expense as incurred.

When activity level is lower than the planned , there is an under absorption of overheads.