A Good Reason Why Partners Should Spell Out the Details

question 213

Multiple Choice

A good reason why partners should spell out the details of their partnership arrangements in writing is

• A) the partnership is not a legally recognized business unless they do so.
• B) a written agreement will help reduce misunderstandings and disagreements among the partners.
• C) putting the agreement in writing will limit the liability of each partner to a specified level.
• D) doing so will make it easier to convert the business to a corporation at a later date.

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Definitions:

Direct Labor

The wages and related costs of employees who are directly involved in the production of goods or services.

Direct Materials Cost

The cost of raw materials that can be directly traced to the production of goods, excluding indirect materials like maintenance supplies.

Finished Goods Inventory

Finished products awaiting sale but still not purchased.

Overhead Rate

The ratio used to allocate indirect costs to products or services, based on a specific measure such as labor hours or machine hours.