Smart Company uses predetermined overhead rate for apply overhead and adjusts cost of goods sold when overhead is over- or underapplied. Smart calculated its predetermined overhead rate for the year $2 per direct labor hour. Actual direct labor hours were 25,000 and actual overhead cost was $55,000. It estimated its direct labor hours as 20,000. What is the adjustment to cost of goods sold?

a.Some other amount not listed here.

b.Overhead is underapplied by $5,000, therefore add this amount to cost of goods sold.

c.Overhead is overapplied by $5,000, therefore subtract this amount from cost of goods sold.

d.Overhead is underapplied by $15,000, therefore add this amount to cost of goods sold.

e.Overhead is overapplied by $15,000, therefore subtract this amount from cost of goods sold.