When a company signs a contract to pay for a specified quantity of goods at a specified price, whether they actually take that much from the supplier or not, is called an):
A)contingent liability.
B)inventory commitment.
C)take-or-pay contract.
D)a contingent pay contract.

Question

Quizplus · Accepted Answer

A take-or-pay contract is a type of supply agreement in which the buyer agrees to either take a specified quantity of goods or pay for them regardless of whether they are taken or not. This helps ensure a minimum level of revenue for the supplier and may allow for more favorable pricing. It is not a contingent liability as the buyer is obligated to pay regardless of the outcome. It is also not inventory commitment or contingent pay contract as those terms do not accurately describe this type of agreement.

When a Company Signs a Contract to Pay for a Specified