Fact Pattern 16-A1

question 13

Multiple Choice

Fact Pattern 16-A1
Business Properties, Inc. , contracts with Corporate Builders, Inc., to construct an office building. BPI agrees to obtain insurance to cover the project, after which the parties waive their rights against the subcontractors. BPI ob?tains the policy from Debit Insurance Company. When the new building is destroyed in a storm, Debit pays BPI and files a suit against the subcontractors.
-Refer to Fact Pattern 16-A1. Under the reasoning of the court in Case 16.2, Midwestern Indemnity Co. v. Systems Builders, Inc., in relation to the waiver in BPI's contract with Corporate Builders, the subcontractors are

• A) incidental beneficiaries and thus liable to Debit.
• B) incidental beneficiaries and thus not liable to Debit.
• C) intended beneficiaries and thus liable to Debit.
• D) intended beneficiaries and thus not liable to Debit.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (direct labor, direct materials, and variable manufacturing overhead) in product costs.

Cost-Volume-Profit Analysis

An accounting technique used to determine how changes in costs and sales volume affect a company's operating income and net income.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and overhead) in the cost of a product.

Common Fixed Costs

Costs that are shared by multiple segments or products of a company and do not change with the volume of production for any single product.