As Part of a Larger Business Plan, Ronald and Margaret

question 5

Multiple Choice

As part of a larger business plan, Ronald and Margaret devised an arrangement that would involve the shipment of widgets to the island of Abuc in the Caribbean. They are concerned, however, that their plan might violate the Trading with Enemy Islands Act, which prohibits the export of goods to certain Caribbean nations. Ronald and Margaret nevertheless want to immediately draft a document that sets up a structure for the shipment of widgets to Abuc, but that will not expose them to liability if, after seeking government approval for their plan, they learn that widgets cannot legally be sent to Abuc. As a matter of risk management, which of the following statements provides the best advice? Ronald and Margaret should insert

• A) an option to terminate into their agreement.
• B) a condition precedent into their agreement.
• C) a true condition precedent into their agreement.
• D) an exclusion clause into their agreement.
• E) a condition subsequent into their agreement.

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Definitions:

Next Processing Department

The subsequent department or phase in a manufacturing process that a product or material moves to after the current processing.

First Processing Department

is the initial stage or department in a manufacturing process where the raw materials start their transformation into finished goods.

Step-Down Method

A cost allocation method used in managerial accounting that allocates service department costs to other parts of an organization, including production departments.

Service Department Costs

Expenses incurred by support departments within a company, such as maintenance and administration, which do not directly produce goods or services but are necessary for operations.