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:

Tax Rates

The percentages at which income, sales, or other taxable activities are taxed by governments.

AASB 112

Australian Accounting Standard Board statement number 112, concerning income taxes, requiring entities to account for taxes based on the concept of comprehensive tax balance sheets.

Deferred Tax Asset

An accounting term used for tax overpayments or advance payments, which will get adjusted against future tax liabilities.