For the Last 14 Months,Greer Has Been a Junior Partner

question 1

Multiple Choice

For the last 14 months,Greer has been a junior partner in a Vancouver law firm.Until now he was receiving a monthly salary of $5000.Senior partners have just decided to stop all salaries because of a pending lawsuit against the firm.It was determined the firm would not make profits for at least the next eight months.Is the firm obliged to continue Greer's salary?

• A)No,it is not,since partners can only be paid out of profits.
• B)Yes,it is,since salaries are the first call on the firm's profits.
• C)No,it is not,since the firm cannot claim the doctrine of frustration.
• D)Yes,it is,since salaries are an expense that comes off before profits are figured.
• E)Yes,it is,since Greer has a wife and kids who are dependant on the salary for basic living expenses.

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Definitions:

Direct Material

Raw materials that can be directly traced to the production of a specific product and are a significant component of its cost.

Variable Overhead

Costs of overhead that vary directly with the level of production, such as utilities or indirect materials.

Power Cost

The expense associated with the consumption of electrical energy by a company's operations.

Efficiency Variances

These variances measure the difference between the actual input used to produce a good or service and the standard input expected to be used, showing how efficiently resources are utilized.