In Which of the Following Situations Is There a Third

question 68

Multiple Choice

In which of the following situations is there a third party incidental beneficiary who would be unable to enforce the agreement?

• A) Wholesalers, when the buyer of a business promises the seller that he will pay outstanding debts to wholesalers who have supplied inventory for the business.
• B) Workers, where a contractor agrees to post a performance bond to assure payment of workers and material suppliers.
• C) A debtor, where a new partner enters an accounting firm and agrees to pay a share of debts incurred prior to his admission to the firm.
• D) A doctor, when an automobile accident policy states that the insurance company will reimburse the insured for medical expenses incurred as a result of an automobile accident.

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Definitions:

Job-Order Costing System

An accounting method that assigns costs to specific jobs or batches of products, capturing the direct materials, direct labor, and manufacturing overhead for each.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate overhead costs to products or job orders based on a certain activity base, such as direct labor hours.

Manufacturing Departments

Specific sections or divisions within a manufacturing facility, each dedicated to a particular stage or function in the production process.

Machine-Hours

A measure of production activity that indicates the total number of hours machines were in operation during a given period.