Blue Heron Manufacturing Disposes of Under or Overapplied Overhead at Year-End

Blue Heron Manufacturing disposes of under or overapplied overhead at year-end as an adjustment to cost of goods sold. Prior to disposal, Blue Heron reported cost of goods sold of $700,000 in a year, when manufacturing overhead was underapplied by $25,000. If sales revenue totalled $2,000,000, the adjusted cost of goods sold and gross margin figures are:

A) $675,000 and $1,300,000, respectively.
B) $675,000 and $1,325,000, respectively.
C) $700,000 and $1,300,000, respectively.
D) $725,000 and $1,275,000, respectively.
E) $725,000 and $1,300,000, respectively.