When a Corporate Manager Makes an Honest Error in Judgment

question 6

Multiple Choice

When a corporate manager makes an honest error in judgment, the business judgment rule directs that the manager will:

• A) be liable for corporate losses.
• B) not be liable and a court will step in to correct the manager's mistake.
• C) not be liable if he acted with care and in good faith.
• D) be liable for all losses resulting from the error.

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Definitions:

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including lease payments, wages, and insurance fees.

Gross Profit

The difference between a company's sales revenue and its cost of goods sold, representing the profit made before accounting for operating expenses.

Special Order

A one-time customer order often involving unique specifications, which might not fit into the company's standard offerings.

Variable Cost

Costs that vary directly with the level of production or volume of output, such as raw materials and direct labor.