gce model questions vol1 2017 commerce | Essay

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Question 1 View Details
Commerce is a vital activity that links producers and consumers and influences the overall economy.
Question Parts
(a)
Define commerce and explain its three main functions.
(b)
Distinguish between the primary, secondary and tertiary sectors of the economy, giving one example of a commercial activity in each sector.
(c)
Discuss two advantages and two disadvantages of a market economy in the context of a developing country.
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Question 2 View Details
The table below shows Nigeria's export and import values for two major commodities in 2019 and 2020 (values in million ₦).\n\nYear | Commodity | Export (million ₦) | Import (million ₦)\n-----|------------|-------------------|-------------------\n2019 | Cocoa beans| 120 | 30 \n2019 | Crude oil | 2,500 | 1,200 \n2020 | Cocoa beans| 150 | 45 \n2020 | Crude oil | 2,200 | 1,500
Question Parts
(a)
Calculate the trade balance for each commodity in each year and comment on the trend observed between 2019 and 2020.
(b)
Compute the terms of trade for Nigeria for each year using the ratio (total export value ÷ total import value) × 100. State whether the terms of trade improved or deteriorated between 2019 and 2020.
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Question 3 View Details
A small retailer in Lagos purchases a batch of 1,200 units of a popular electronic gadget from a local wholesaler at a total cost of ₦720,000. The retailer adds a standard markup of 35 % on the cost price to determine the selling price per unit. Fixed overheads (rent, salaries, utilities) for the month amount to ₦150,000 and variable overheads (packaging, transport) are ₦20 per unit sold. The retailer offers a promotional discount of 5 % on the selling price for bulk purchases of 20 units or more.
Question Parts
(a)
Calculate the selling price per unit before any discount and the gross profit earned on each unit sold at this price.
(b)
Determine the break‑even quantity (number of units that must be sold) for the month, taking the discount into account for any sales of 20 units or more.
(c)
If the fixed overheads increase by 10 % during the next month, recalculate the break‑even quantity under the same discount policy.
(d)
Discuss the advantages and disadvantages of using a markup‑based pricing strategy compared with a profit‑margin based strategy for this retailer.
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Question 4 View Details
A Nigerian cocoa exporter ships 25 tonnes of high‑quality cocoa beans to a buyer in the Netherlands. The contract is priced at €2,200 per tonne on an FOB (Free on Board) basis. The current exchange rate is ₦560 per €1. Shipping and insurance costs amount to €0.30 per tonne and are payable by the exporter. The Nigerian government imposes a 5 % export duty on the FOB value, and the exporter must also pay a fixed processing fee of ₦45,000. The exporter’s overheads (administrative, marketing) for the shipment are ₦120,000.
Question Parts
(a)
Calculate the total export revenue in Naira that the exporter will receive from the buyer.
(b)
Determine the total cost in Naira incurred by the exporter (including shipping, insurance, export duty, processing fee and overheads).
(c)
Compute the net profit earned by the exporter in Naira.
(d)
If the Naira depreciates by 5 % against the euro before the payment is received, recalculate the net profit and comment on how exchange‑rate risk affects the exporter’s earnings.
(e)
Briefly evaluate whether FOB or CIF (Cost, Insurance, Freight) terms would be more advantageous for the exporter in this transaction.
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Question 5 View Details
A retailer purchases a stock of a single product and incurs various costs. The retailer buys 500 units at a purchase price of ₦1,200 per unit. In addition, the retailer incurs variable overheads of ₦200 per unit (packaging, utilities) and fixed overheads of ₦150,000 per month (rent, salaries). The retailer wishes to earn a profit of ₦200,000 in the month.
Question Parts
(a)
Determine the selling price per unit that the retailer must charge to achieve the desired profit, assuming all 500 units are sold.
(b)
The retailer decides to offer a 10 % discount on the selling price for any customer who purchases 100 units or more. If the retailer sells exactly 100 units at the discounted price and the remaining 400 units at the full selling price, calculate the profit actually earned.
(c)
Comment briefly on whether the retailer meets the original profit target and suggest one alternative strategy to improve profit.
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Question 6 View Details
A wholesaler purchases a single product from a manufacturer and sells it to retailers. The wholesaler buys 2,000 units at a list price of ₦800 per unit and receives a trade discount of 5 % from the manufacturer. Variable costs incurred by the wholesaler amount to ₦150 per unit (transport, handling). Fixed costs for the month total ₦120,000. The wholesaler sets a standard selling price of ₦1,200 per unit for retailers and offers a cash discount of 2 % if payment is made within 10 days; otherwise the full price is payable on the 30‑day credit term. Assume the wholesaler sells 1,000 units in the month and that 60 % of the retailers take the cash discount.
Question Parts
(a)
Calculate the effective purchase cost per unit after the trade discount.
(b)
Find the gross profit per unit before any cash discount is applied.
(c)
Determine the break‑even quantity (in units) for the month.
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Question 7 View Details
Three friends, Aisha, Bayo and Chinedu, intend to start a business selling homemade pastries in Lagos. They are evaluating three possible forms of business organisation: a sole proprietorship, a partnership and a private limited company.
Question Parts
(a)
Explain the key legal differences between a partnership and a private limited company in terms of liability, ownership and continuity.
(b)
Discuss the advantages and disadvantages of each of the three forms of organisation (sole proprietorship, partnership, private limited company) for raising finance.
(c)
Assuming the friends want to limit their personal liability while retaining control over decision‑making, recommend the most suitable form of organisation and justify your recommendation with reference to at least three relevant factors.
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Question 8 View Details
GreenTech Ltd, a medium‑size manufacturing firm, needs ₦120 million to expand its production capacity. The firm can obtain finance from three sources: 1. A bank loan at 12 % per annum repayable over 5 years. 2. Issuance of 5‑year corporate bonds at 10 % per annum. 3. Equity financing by issuing new ordinary shares at a market price of ₦2 500 per share. The current market price of the existing shares is also ₦2 500 and the company has 200 000 shares outstanding. The firm’s weighted average cost of capital (WACC) is 9 %. Assume that interest on debt is calculated on a simple‑interest basis for the whole period.
Question Parts
(a)
Calculate the total interest cost over the life of the bank loan and the total interest cost over the life of the bond issue if GreenTech raises the full ₦120 million through each source.
(b)
Determine the number of new shares that must be issued to raise the required ₦120 million through equity.
(c)
Using the information above, evaluate which source of finance is most cost‑effective for GreenTech Ltd, considering both the cost of capital and the impact on existing shareholders. Provide a reasoned conclusion.
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Question 9 View Details
Alpha Ltd, a small manufacturing firm, is applying for a term loan to purchase new equipment. The bank has offered two loan packages:
Question Parts
(a)
Calculate the effective annual interest rate for each loan offer. (Offer 1: 12 % p.a. nominal, compounded monthly; Offer 2: 11 % p.a. nominal, compounded quarterly.)
(b)
Using the lower effective rate, determine the monthly repayment required for a loan of ₦500,000 to be repaid over 3 years.
(c)
Discuss three non‑financial criteria that a bank typically considers when assessing a loan application such as Alpha Ltd’s.
(d)
Recommend which loan offer Alpha Ltd should accept and justify your choice based on the calculations and criteria discussed.
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Question 10 View Details
An insurance company provides motor insurance for private cars. The actuary has estimated the following for a particular class of drivers:
Question Parts
(a)
If the average annual claim cost for a driver in this class is ₦120,000 and the probability of a claim in a year is 0.15, calculate the pure premium per driver.
(b)
The insurer adds a loading of 25 % for administrative expenses and then a profit margin of 10 % of the loaded premium. Determine the final annual premium payable by the driver.
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