Campus Bus Service Entered into a Contract with Smith Bus

question 18

Multiple Choice

Campus Bus Service entered into a contract with Smith Bus Company to purchase 10 buses. One week before Campus Bus was scheduled to receive the buses, a fire destroyed Smith's warehouse and the buses inside. As a result, Campus Bus had to purchase its buses at a slightly higher cost from another manufacturer. Campus Bus sues Smith Bus for damages for breach of contract under these circumstances. Assume Campus Bus did not bear the risk of loss of the goods under the contract. In this scenario, _____.

• A) Smith Bus should be excused from performance under the clause for the rights on improper delivery
• B) Smith Bus should not be excused from performance because it did not act in good faith
• C) Smith Bus should be excused from performance under the test of commercial impracticability
• D) Smith Bus can exercise its right of anticipatory repudiation

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Definitions:

Gross Profit Rate

A financial ratio that represents the portion of each dollar of revenue that remains after deducting the cost of goods sold, indicating the efficiency of production and pricing.

Equity Method

An accounting technique used by companies to assess the profits earned by their investments in other companies, where the investment gives the investor significant influence over the investee.

Intra-entity Purchases

Buying and selling of goods or services between departments or divisions within the same company.

Gross Profit Rate

The ratio of gross profit to net sales, indicating the efficiency of a company in managing its production and labor costs.