Danforth Manufacturing Company Uses a Cost-Plus Pricing Strategy

Multiple Choice

Danforth Manufacturing Company uses a cost-plus pricing strategy. At the beginning of 2013, 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 in 2013.
B) a higher than appropriate selling price was assigned to products in 2013.
C) the correct selling price was assigned to products in 2013.
D) the answer cannot be determined from the information provided.