A company operates an absorption costing system. Overheads are absorbed using a pre-determined absorption rate using labour hours.

A company operates an absorption costing system. Overheads are absorbed using a pre-determined absorption rate using labour hours.

Actual labour hours were 10% below budget for the period and overheads incurred were 10% above budget for the period. This would result in:
A . An over-absorption of overheads for the period
B . An under-absorption of overheads for the period
C . Neither an over- or under-absorption of overheads for the period
D . Impossible to tell from the information available

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Answer: B