Which of the following correctly explains what should be done with any under- or over-applied overhead?

Select one:

A. At year end, if there is a significant amount of under- or over-applied overhead, it should all be closed to Cost of Goods Sold.

B. At the end of a project, any insignificant under- or over-applied overhead should be closed to Work in Process prior to transferring the costs to Finished Goods.

C. It is not normal for a company to have under- or over-applied overhead, because overhead is allocated based on actual costs incurred.

D. At year end, if there is a significant amount of under- or over-applied overhead, it should be allocated proportionally to Work in Process, Finished Goods, and Cost of Goods sold.

E. Monthly, any significant amount of under- or over-applied overhead should be closed to Cost of Goods Sold.