Bank X Agrees to Open a Letter of Credit on Jerry's

question 4

Multiple Choice

Bank X agrees to open a letter of credit on Jerry's behalf in favour of Fruta, a Bulgaria- based manufacturer of jams and preserves, that Jerry wants to use as payment for a shipment of inventory headed for Canada. The letter is confirmed by Liberty Bank, a bank based in Sofia, Bulgaria, that is Fruta's principal banker and creditor. This letter of credit is "irrevocable and confirmed." Which statement best describes the rights and obligations of the parties?

• A) Jerry can revoke the letter of credit at any time.
• B) Bank X may revoke the letter of credit if Fruta does not present documents conforming to the requirements of the letter of credit.
• C) Fruta will present documents conforming to the requirements of the letter of credit to Liberty Bank, which will pass them on to Bank X which will pay Fruta directly.
• D) Fruta will present documents conforming to the requirements of the letter of credit to Liberty Bank, which will pass them on to Bank X, which will, in turn pass them on to Jerry. Jerry will pay Fruta directly.
• E) Liberty Bank is obliged to pay Fruta so long as it receives documents conforming to the requirements of the letter of credit from Fruta. Liberty Bank will be reimbursed by Bank X.

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Definitions:

Machine Hours

A measurement of the amount of time a machine is operated during a given period.

Variable Manufacturing Overhead

Costs of manufacturing that vary with the level of production, such as supplies and utilities used in the production process.

Job A496

This is a reference to a specific task, project, or work order within a job costing system, identified by the code A496.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual products or job orders, based on a formula that estimates the costs.