Micro Enterprises Planned to Produce 120,000 Lerts Per Year

Multiple Choice

Micro Enterprises planned to produce 120,000 lerts per year. Annual overheads, of which 32.5% are variable, are estimated at $320,400. 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, using 356,000 direct labor hours. Actual overhead expenditures totaled $333,333.

A) Under-applied overhead is $417 and should be credited to CGS
B) Under-applied overhead is $417 and should be prorated across Raw Materials, Work in Process, and Finished Goods inventories and Cost of Goods Sold
C) Under-applied overhead is $16,493 and should be charged to Cost of Goods Sold
D) Over-applied overheads are $417 and should be credited to Cost of Goods Sold
E) None of the above