If actual overhead is less than overhead absorbed, which condition is this?

If actual overhead is less than overhead absorbed, which condition is this?

• A. Under-absorption
• B. Break-even
• C. No absorption
• D. Over-absorption

Answer: (D)

Over-absorption occurs when the overhead absorbed into production is greater than the actual overhead incurred. This means the allocated overhead to products exceeded the true cost, creating a credit balance in the overhead control account. The excess is usually released to cost of goods sold (or adjusted through inventory) at period end. If actual overhead were greater than absorbed, you’d have under-absorption; if they were equal, there would be no overhead variance; no absorption would mean no overhead was allocated at all.

Over-absorption occurs when the overhead absorbed into production is greater than the actual overhead incurred. This means the allocated overhead to products exceeded the true cost, creating a credit balance in the overhead control account. The excess is usually released to cost of goods sold (or adjusted through inventory) at period end. If actual overhead were greater than absorbed, you’d have under-absorption; if they were equal, there would be no overhead variance; no absorption would mean no overhead was allocated at all.