When a Contract Proves to Be a Bad Bargain

question 20

Multiple Choice

When a contract proves to be a bad bargain:

• A) the injured party is never bound by the terms of the contract.
• B) courts will always imply terms that are necessary to avoid hardship.
• C) parties are generally still bound by the terms of the contract.
• D) the contract must be rewritten.

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Definitions:

Favorable Variance

A financial term indicating that actual costs were lower or revenues were higher than planned.

Budgeted Amount

The projected costs or revenues allocated to a specific activity or period, based on estimates.

Budget Ratcheting

The practice of setting future budget allocations based on the current period’s expenditures, discouraging under-spending in fear of budget cuts.

Budget Lapsing

A type of budgeting that does not allow managers to carry over budget surpluses from one year into the next year. Under a budget lapsing system, funds not spent are lost at the end of the budget period.