15. Micro Enterprises planned to produce 120,000 lerts per year. Annual overhead, of which 32.5% is variable, is estimated at $360,000. Each lert takes 1.2 machine hours and 3 labor hours to produce. The firm allocates overhead by direct labor hours.

You review the accounting records at the end of the year. You learn that Micro made 125,000 lerts in the year. Actual overhead expenditures totaled $370,000. Which is true with respect to Under/Over-applied overhead?

A. Under-applied overhead is $5,000 and should be credited to Cost of Goods Sold

B. Over-applied overhead is $5,000 and must be prorated across Raw Materials, Work in Process, and Finished Goods inventories and Cost of Goods Sold

C. Over-applied overhead is $5,000 and can be charged to Cost of Goods Sold or prorated across Raw Materials, Work in Process, Finished Goods and Cost of Goods Sold

• D. None of the choices are correct