The correct answer is A. Over absorption of overheads.
Over absorption of overheads is the excess of overheads absorbed over the actual amount of overheads incurred. This can occur when the predetermined overhead rate is too high.
Under absorption of overheads is the excess of actual overheads incurred over the overheads absorbed. This can occur when the predetermined overhead rate is too low.
Overheads absorption is the process of allocating overhead costs to products or services. This is done by using a predetermined overhead rate, which is a rate that is based on the estimated amount of overhead costs that will be incurred in a period and the estimated number of units that will be produced or sold in that period.
The predetermined overhead rate is multiplied by the actual number of units produced or sold to determine the amount of overhead that is absorbed by each unit. The total amount of overhead that is absorbed is then compared to the actual amount of overhead that was incurred to determine whether there is over absorption or under absorption of overheads.