Joe Owed Sam $5000

question 131

Essay

Joe owed Sam $5000. After the money was due, he approached Sam and told him that he couldn't pay the money, but if Sam was willing to take $3000 that day in full satisfaction of the debt, he could come up with that money. Sam agreed to take the money and, in fact, took the money. Once he had it in his possession, he then turned around and sued Joe for the other $2000. Explain the likely outcome.

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Definitions:

Absorption Costing

A method of costing that includes all manufacturing costs, both fixed and variable, in the cost of a product.

Cost-plus Pricing

A pricing strategy where the selling price is determined by adding a specific markup to a product's cost price.

Return on Investment

A measure used to evaluate the efficiency of an investment, calculated as net profit divided by the cost of the investment.

Markup

The increment added to the acquisition cost of products to address company overheads and earn profit.