Fronia, a Neighbour of David, Wished to Borrow a Sum

question 29

Multiple Choice

Fronia, a neighbour of David, wished to borrow a sum of money from a local bank. David was quite wealthy but elderly, with very poor eyesight. He frequently requested Fronia to read his newspaper to him when Fronia would drop by for a visit because reading was exceedingly difficult for him. One evening, Fronia placed a paper before David and explained to him that she wished to borrow a sum of money but required a letter of reference before the bank would make the loan. She requested David to sign the paper to satisfy this requirement. David trusted his friend Fronia and signed the paper at her request without reading it.
Unknown to David, the paper was a guarantee of Fronia's indebtedness, and not a letter of reference, and Fronia later defaulted on her debt.

• A) David may successfully plead non est factum as a defence to any claim by Fronia's creditor.
• B) If Fronia had told David that the paper was a guarantee for $1500 when it was in fact for $2000, David could still successfully plead non est factum as a defence.
• C) Fronia required David's signature on the paper because the Statute of Frauds requires a guarantee to be in writing and signed to be enforceable.
• D) Fronia required David's signature on the paper because the Statute of Frauds requires a guarantee to be in writing and signed to be enforceable and David may successfully plead non est factum as a defence to any claim by Fronia's creditor.
• E) All of the responses are correct.

Calculate contribution margin per unit and understand its significance.

Identify and calculate direct and indirect manufacturing costs.

Determine the incremental manufacturing cost for a single unit increase in production.

Understand and apply cost classifications such as direct materials, direct labor, manufacturing overhead, and period costs.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including materials, labor, and manufacturing overhead.

Underapplied

Refers to a situation where the allocated manufacturing costs are less than the actual manufacturing costs incurred.

Overapplied

A situation in accounting where the allocated manufacturing overhead cost is more than the actual overhead incurred.

Manufacturing Overhead

Indirect costs attributed to the production process, including costs associated with maintaining the manufacturing facilities.