Under/Over absorption in activity levels

Hi All,

So I came across the following question, and it feels like there’s some underlying assumptions that need to be inferred to make this a rule, but i don’t know?

Which of the following is most likely to lead to an under-absorption of overheads?
A. Where actual production is > Budgeted production
B. Where budgeted production > Actual production
C. Where budgeted and actual production are less than the previous year

So the answer is B, and the reason is “an under-absorption ‘typically’ occurs when actual production < budgeted production.”

What makes it ‘typically’ lead to an under-absorption, is it just a rule accept it and move on or is there an actual reason behind it?

If production falls is there some skewed probability that makes actual OH > absorbed OH a more likely scenario leading to under-absorption…