Danforth Manufacturing Company Uses a Cost-Plus Pricing Strategy

question 143

Multiple Choice

Danforth Manufacturing Company uses a cost-plus pricing strategy.At the beginning of the year,Danforth estimated that total annual fixed overhead costs would amount to $60,000.Further,Danforth estimated that the annual volume of production would be 1,000 units of product.Based on these estimates,Danforth computed a predetermined overhead rate that was used to allocate overhead cost to the products made throughout the year.As predicted,the actual volume of production amounted to 1,000 units of product.However,actual fixed overhead costs amounted to $56,000.Based on this information alone:

• A) a lower than appropriate selling price was assigned to products during the year.
• B) a higher than appropriate selling price was assigned to products during the year.
• C) the correct selling price was assigned to products during the year.
• D) the answer cannot be determined from the information provided.

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Definitions:

Parathyroid Gland

One of four glandular masses embedded in the posterior surface of the thyroid gland; secretes parathyroid hormone.

Mineralocorticoids

A class of corticosteroids that are essential for regulating the balance of minerals and water in the body.

PTH

Parathyroid hormone, a regulator of calcium and phosphate metabolism in the body.

Insulin

A biochemical produced in the pancreas that helps regulate the amount of sugar in the blood by enabling tissues to absorb glucose.