Carson Arranged with His Brother-In-Law, Waxman, That He Would Try

question 3

Multiple Choice

Carson arranged with his brother-in-law, Waxman, that he would try to buy a famous old B.C. coastal airplane, the Spruce Ghost, which Waxman would then buy from him to display in his flight museum. Waxman promised to pay Carson a 10% commission over the price that Carson had to pay to buy the plane, so that their price would be 110% of Carson's purchase price. Carson and the owner, Wonka, agreed on a price of $80,000. After reconditioning the plane but before delivering it to Carson, Wonka decided to take it up for one last nostalgic flight and, because of his carelessness, he crashed it on take-off. Although Wonka escaped uninjured, the plane caught fire and was totally destroyed. Carson was able to locate a similar plane for only $60,000 but Waxman wasn't interested. Carson sued his brother-in-law and Wonka. What is the likely outcome of this suit?

• A) Waxman will have to pay Carson $8000, the commission on the agreed sale price between Carson and Wonka.
• B) Waxman will have to pay Carson $6000 as the commission he would have made on the purchase of the second plane.
• C) Wonka will have to pay Carson damages (probably $8000) for breach of contract.
• D) Because the contract between Carson and Wonka was frustrated by the destruction of the Spruce Ghost, Carson has no claim against anyone.
• E) The Frustrated Contracts Act will require Carson to share in the expense of reconditioning the Spruce Ghost that Wonka had undertaken in preparation for sale.

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Definitions:

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, providing a more accurate reflection of costs.

Direct Labor-Hours

Direct labor-hours are the total hours worked by employees directly involved in the manufacturing process.

Direct Materials Cost

The cost of raw materials used to produce a product, which are directly attributable to the product.

Direct Labor-Hours

The combined working hours of employees directly contributing to the manufacturing cycle.