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    Question

    In the context of cost accounting, overheads refer to indirect costs that are allocated to cost units or cost centres. The process of absorbing overheads involves applying a predetermined overhead rate to allocate these costs. When the actual overheads are more than the absorbed overheads. It is called _______

    A Over absorption Correct Answer Incorrect Answer
    B Under absorption Correct Answer Incorrect Answer
    C Capacity cost Correct Answer Incorrect Answer
    D all of which Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    Under absorption occurs when the actual overhead costs are greater than the overhead costs that have been allocated or absorbed. This indicates that the overhead absorption rate was set too low, resulting in a shortfall that needs to be accounted for in the financial statements.

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