gce model questions vol1 2020 commerce | Essay

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Question 1 View Details
Commerce is the activity of buying and selling goods and services and plays a vital role in the economy.
Question Parts
(a)
Explain two ways in which commerce contributes to economic development in a developing country.
(b)
Discuss one advantage and one disadvantage of a mixed economy compared with a pure market economy.
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Question 2 View Details
Country X imports raw cotton and exports finished garments. The export price index for garments was 150 in 2020 and rose to 180 in 2021. The import price index for raw cotton was 120 in 2020 and rose to 150 in 2021.
Question Parts
(a)
Calculate the terms of trade for 2020 and 2021 and comment on the change.
(b)
The government imposes a 10 % tariff on imported raw cotton. Assuming the world price of cotton is ₦200 per kilogram before the tariff, calculate the new domestic price of cotton and discuss qualitatively how the tariff is likely to affect (i) the cost of production for garment manufacturers, (ii) the price of the final garment for consumers, and (iii) the overall terms of trade.
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Question 3 View Details
A small retailer in Lagos sells handcrafted wooden bowls. The retailer purchases each bowl from a local artisan at a cost price of ₦1,200. The retailer adds a markup to cover overheads and profit. In the first month, the retailer sold 150 bowls at a selling price of ₦2,000 each, and incurred monthly fixed overheads of ₦30,000.
Question Parts
(a)
Calculate the percentage markup (based on cost price) that the retailer applied to each bowl.
(b)
Determine the total profit earned by the retailer in the first month.
(c)
The retailer is considering increasing the selling price by 10 % but expects sales volume to fall by 15 %. Should the retailer adopt the new price? Show all calculations and justify your answer.
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Question 4 View Details
A Nigerian cocoa exporter has a contract to sell 10,000 kg of cocoa beans to a European buyer at €2 per kilogram. The current exchange rate is ₦550 per €1. The exporter must pay a 5 % export duty and a 2 % shipping‑insurance charge on the total FOB value (in Naira). The importing country imposes a 10 % tariff, which is paid by the buyer and does not affect the exporter’s receipts.
Question Parts
(a)
Calculate the total FOB value of the shipment in Naira.
(b)
Determine the total amount the exporter receives after deducting the export duty and shipping‑insurance charge.
(c)
If the exchange rate moves to ₦600 per €1, what would be the exporter’s net receipt in Naira (assuming the same duty and insurance percentages)?
(d)
Discuss the advantages and disadvantages for the exporter of entering a forward contract to lock in the current exchange rate of ₦550/€.
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Question 5 View Details
A small retail shop sells two types of product: Type A (a fashion accessory) and Type B (a home‑decor item). The shop purchases each unit of Type A at ₦2,500 and each unit of Type B at ₦1,800. The selling price per unit of Type A is set at a 40 % markup on cost, while Type B is sold at a 30 % markup on cost. Fixed monthly costs (rent, salaries, utilities) amount to ₦150,000. In the most recent month, the shop sold 120 units of Type A and 200 units of Type B.
Question Parts
(a)
Calculate the total revenue for the month.
(b)
Determine the gross profit for each product type and the overall gross profit.
(c)
Compute the net profit (or loss) for the month after deducting the fixed costs.
(d)
The shop owner is considering increasing the markup on Type B to 45 % while keeping the selling price of Type A unchanged. Assuming the same sales volume, calculate the new net profit and comment on the impact on profitability.
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Question 6 View Details
A wholesale distributor purchases electronic gadgets from a manufacturer at a unit cost of ₦15,000. The distributor adds a wholesale margin of 25 % to determine the wholesale price charged to retailers. Retailers then apply a 30 % markup to set the final selling price to consumers. The distributor incurs variable costs of ₦1,200 per unit (transport, handling) and fixed monthly costs of ₦80,000 (warehouse rent, staff). In a typical month the distributor sells 500 units.
Question Parts
(a)
Determine the wholesale price per unit charged to retailers.
(b)
Compute the total revenue, total variable cost, and contribution margin for the month.
(c)
Calculate the break‑even volume (in units) for the distributor, considering both variable and fixed costs.
(d)
If the distributor offers a seasonal discount of 10 % on the wholesale price to retailers, but expects a 20 % increase in sales volume, evaluate whether the discount will increase the distributor’s net profit. Show calculations and justify your answer.
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Question 7 View Details
A family of three – two spouses and their adult child – wishes to start a retail shop selling clothing and accessories in Lagos. They are evaluating three possible forms of business organisation: a sole trader, a partnership and a private limited company (Ltd).
Question Parts
(a)
Define each of the three forms of business organisation and state one key characteristic that distinguishes it from the others.
(b)
Discuss the main advantages and disadvantages of each form for the family, considering:
(c)
Recommend the most suitable form of organisation for the family’s retail shop. Justify your recommendation with at least three relevant criteria.
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Question 8 View Details
A small manufacturing firm needs to raise ₦5,000,000 to purchase new equipment. The management is considering three sources of finance:
Question Parts
(a)
A bank offers a loan with a nominal annual interest rate of 12% compounded monthly and a one‑off processing fee of 2% of the loan amount. Calculate the effective annual interest rate (EAR) that reflects both the compounding and the fee.
(b)
The firm can also obtain finance through a hire‑purchase arrangement. The terms are:
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Question 9 View Details
A small manufacturing firm is considering two financing alternatives for a capital requirement of ₦500,000. Option 1 is a fixed‑deposit investment with the bank that pays a nominal rate of 8% per annum, compounded semi‑annually, for a period of 2 years. Option 2 is a revolving credit facility that charges a nominal rate of 12% per annum, calculated monthly on the reducing balance, and must be repaid in equal monthly instalments over 24 months. Using the information given, answer the following:
Question Parts
(a)
Calculate the effective annual rate (EAR) for the fixed‑deposit and determine the amount the firm will have at the end of the 2‑year period.
(b)
Determine the monthly instalment required to repay the credit facility and calculate the total interest payable over the 24 months.
(c)
Discuss the advantages and disadvantages of each financing option for the firm, considering cash‑flow timing, cost of finance and any risk factors.
(d)
Based on your calculations and discussion, recommend which option the firm should adopt and justify your recommendation.
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Question 10 View Details
An insurance company offers a motor‑vehicle policy whose premium is calculated on the insured value of the vehicle. The base premium is 2% of the insured value. Additional loadings are applied according to the driver’s age and a discount is given if the vehicle is fitted with an approved anti‑theft device. • Age loading: under 25 years – add 1.5% of the insured value; 25‑40 years – add 0.5%; over 40 years – add 0.2%. • Anti‑theft discount: subtract 0.3% of the insured value if the device is fitted. The company expects a claim frequency of 5% per policy year and that an average claim will equal 70% of the insured value. Administrative expenses are estimated at 5% of the premium. Three drivers are seeking cover: • Driver A: 22 years old, vehicle value ₦2,000,000, no anti‑theft device. • Driver B: 30 years old, vehicle value ₦1,500,000, with anti‑theft device. • Driver C: 45 years old, vehicle value ₦3,000,000, with anti‑theft device. Answer the following:
Question Parts
(a)
Calculate the annual premium payable by each driver.
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