Lagos Plastics Plc budgeted production overhead for the year at ₦18,000,000 and budgeted machine hours at 60,000. Actual production overhead incurred was ₦19,200,000 and actual machine hours worked were 62,000. What is the overhead absorption rate and the over/under absorption for the year?

OAR = Budgeted overhead ÷ Budgeted hours = ₦18,000,000 ÷ 60,000 = ₦300 per machine hour. Overhead absorbed = 62,000 × ₦300 = ₦18,600,000. Actual overhead = ₦19,200,000. Under-absorption = ₦19,200,000 − ₦18,600,000 = ₦600,000. Since absorbed is less than actual, this is under-absorption of ₦600,000.