Joe, Tanya, Fred and Susan are old friends from high school, now working in various boring office jobs in the city. One night, Susan invites everyone to her house for dinner and a chat. During dinner, and while the 4 friends were complaining about how much they hated their jobs, they start throwing some ideas around for starting their own business. At one point, they tell each other: “Man, as soon as this business makes money, I’m quitting my office job. We are going to be rich!”   The 4 friends agree to start a cupcake business together. They are very excited and start writing down a business structure on a napkin. It reads: “Susan and Fred will do the baking and decorating, Joe and Tanya will do the paperwork side of things including booking market stalls, asking Bunnings if they can sell cupcakes on Sat mornings, create a Facebook page & website for the business and manage the money side of things.” They also agree that they would split all profits and losses evenly.   For the next few months, everything goes well, although they find themselves making a loss every month. Despite the loss, the 4 friends support each other and help each other when they get sick, they encourage each other and sometimes even stay back until 3am at Susan’s house to help decorate the cupcakes when a big order comes in.   At the end of the first year however, when the cupcake business was $10,000 in debt with local suppliers, Joe sent the others a msg on Whatsapp saying: “This is ridiculous. I’m out of here.. And don’t even think of asking me to help settle that $10,000. This was never a partnership. AND…I don’t even like cupcakes!”   REQUIRED: ADVISE FRED, SUSAN & TANYA WHETHER A VALID PARTNERSHIP WAS CREATED

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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Joe, Tanya, Fred and Susan are old friends from high school, now working in various boring office jobs in the city. One night, Susan invites everyone to her house for dinner and a chat. During dinner, and while the 4 friends were complaining about how much they hated their jobs, they start throwing some ideas around for starting their own business. At one point, they tell each other: “Man, as soon as this business makes money, I’m quitting my office job. We are going to be rich!”

 

The 4 friends agree to start a cupcake business together. They are very excited and start writing down a business structure on a napkin. It reads: “Susan and Fred will do the baking and decorating, Joe and Tanya will do the paperwork side of things including booking market stalls, asking Bunnings if they can sell cupcakes on Sat mornings, create a Facebook page & website for the business and manage the money side of things.” They also agree that they would split all profits and losses evenly.

 

For the next few months, everything goes well, although they find themselves making a loss every month. Despite the loss, the 4 friends support each other and help each other when they get sick, they encourage each other and sometimes even stay back until 3am at Susan’s house to help decorate the cupcakes when a big order comes in.

 

At the end of the first year however, when the cupcake business was $10,000 in debt with local suppliers, Joe sent the others a msg on Whatsapp saying: “This is ridiculous. I’m out of here.. And don’t even think of asking me to help settle that $10,000. This was never a partnership. AND…I don’t even like cupcakes!”

 

REQUIRED: ADVISE FRED, SUSAN & TANYA WHETHER A VALID PARTNERSHIP WAS CREATED

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