Under What Circumstance Would It Be Logical to Leave Contracts

question 24

Multiple Choice

Under what circumstance would it be logical to leave contracts vague and open-ended?

• A)When performance may be ambiguous or difficult to measure.
• B)When one of the firms in the contract is much larger than the other firm
• C)If there are many other firms that can provide the same service or product
• D)When the cost of writing the contract is too high
• E)If the smaller of the two contracting firms is the upstream firm

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Definitions:

Manufacturing Overhead

All manufacturing costs that are not directly assignable to specific units of product, including indirect labor and materials.

Total Variable Cost

The sum of all variable costs associated with the production of goods or services, which increases or decreases based on production volume.

Cost Change

Any variation, either an increase or decrease, in the total costs associated with production or operations.

Mixed Costs

Expenses that contain both fixed and variable components, changing in total with the level of activity.