Acompany uses absorption costing with a predetermined hourly overhead absorption rate. The following situations arose last month:

(i) Actual hours worked exceeded planned hours.

(ii) Actual overhead expenditure exceeded planned expenditure.

Which of the following statements is correct?

(a) Situation (i) would cause overheads to be over-absorbed and situation

(ii) would cause overheads to be under-absorbed.

(b) Situation (i) would cause overheads to be under-absorbed and situation

(ii) would cause overheads to be over-absorbed.

(c) Both situations would cause overheads to be over-absorbed.

(d) Both situations would cause overheads to be under-absorbed.

(2 marks)

ACCA Financial Information for Management