A Business Which Enters into a Contract to Purchase a Product

question 99

Multiple Choice

A business which enters into a contract to purchase a product (or products) and will compensate the manufacturer under a cost reimbursement formula, should take an active part in the determination of how joint costs are allocated because

• A) the manufacturer will attempt to allocate as large a portion of its costs to these products.
• B) if the manufacturer successfully allocates a large portion of its costs to these products then it will be able to sell its other nonreimbursed products at lower prices.
• C) the CICA requires the business to participate in the cost allocation process.
• D) Both A and B are correct.
• E) Both A and C are correct.

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Definitions:

Trading Securities

Financial instruments that are purchased and held primarily for selling them in the near term to generate income on short-term price differences.

Marketable Securities

Financial instruments that can be easily converted into cash, typically with high liquidity and short-term maturities.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee’s profits or losses.

Significant Influence

The power to participate in the financial and operating policy decisions of another entity, without having control over it.