gce model questions vol1 2022 commerce | Essay

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Question 1 View Details
Answer the following questions about the nature and functions of commerce.
Question Parts
(a)
Define commerce and explain how it differs from trade.
(b)
List and briefly describe three major functions of a market in a mixed economy.
(c)
Discuss two ways in which the rise of e‑commerce has altered the traditional role of physical retail outlets in Nigeria.
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Question 2 View Details
A Nigerian cocoa exporter, CocoaCo Ltd, sells raw cocoa beans to an overseas buyer. The agreed FOB price is US$2,500 per metric tonne. The current exchange rate is ₦820 per US$. The exporter incurs the following additional costs per tonne: inland transport to the port ₦120,000, loading and handling at the port ₦80,000, and export insurance ₦50,000. A tariff of 5% is imposed by the importing country on the CIF value (FOB price plus freight of US$200 per tonne, converted at the same exchange rate).
Question Parts
(a)
Calculate the total cost in naira incurred by CocoaCo per tonne, including all listed costs and the tariff payable by the buyer. Show all steps.
(b)
If CocoaCo wishes to earn a profit margin of 12% on the total cost (excluding the tariff), determine the minimum selling price in naira per tonne that the exporter should quote to the buyer (FOB price). Assume the buyer will pay the tariff in addition to the FOB price.
(c)
Discuss two potential risks associated with exchange‑rate fluctuations for CocoaCo and suggest one mitigation strategy for each risk.
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Question 3 View Details
A small home‑based retailer produces handcrafted wooden toys. The cost of materials and labour for each toy is ₦1,200. The retailer incurs fixed monthly overheads of ₦150,000 (rent, electricity, advertising). The retailer expects to sell 500 toys each month and wishes to earn a profit of ₦200,000 per month.
Question Parts
(a)
Determine the minimum selling price per toy that will enable the retailer to achieve the desired monthly profit.
(b)
If the retailer offers a 10 % discount on the selling price calculated in part (a), compute the new profit and state whether the target profit of ₦200,000 is still met.
(c)
Suggest two non‑price factors the retailer could use to maintain sales volume if the discounted profit falls short of the target.
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Question 4 View Details
An import firm in Nigeria plans to import 2,000 units of an electronic component from Japan. The FOB price is ¥5,500 per unit. The current exchange rate is ₦0.55 per ¥1. Shipping costs ₦12,000 in total and insurance is charged at 0.4 % of the CIF value. Import duty is 15 % of the CIF value and VAT is 7.5 % of the sum of CIF value and duty.
Question Parts
(a)
Calculate the landed cost per unit in Naira and the selling price per unit if the firm applies a 30 % markup on the landed cost.
(b)
If the exchange rate rises by 5 % (from ₦0.55 to ₦0.5775 per ¥1), recalculate the landed cost per unit and the new selling price with the same 30 % markup. Comment on the impact of the exchange‑rate change on the firm’s profitability.
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Question 5 View Details
A retailer deals in two product lines – smartphones and headphones. The following information is given for a typical month: - Cost price per smartphone: ₦150,000 - Selling price per smartphone: ₦200,000 - Cost price per headphone: ₦15,000 - Selling price per headphone: ₦25,000 - Fixed overheads (rent, salaries, utilities): ₦500,000 per month - The retailer expects the sales mix to be 60 % smartphones and 40 % headphones. - If a retailer purchases more than 20 smartphones in a single order, a 5 % discount on the selling price of each smartphone is offered. Answer the following questions:
Question Parts
(a)
Calculate the gross profit per unit for a smartphone and for a headphone.
(b)
Using the expected sales mix, determine the total number of units (both products combined) the retailer must sell in the month to cover the fixed overheads (i.e., the break‑even quantity). State the corresponding number of smartphones and headphones required.
(c)
If the 5 % discount on smartphones is applied to every smartphone sale when more than 20 smartphones are bought in a month, recalculate the break‑even total units and the required numbers of each product. Comment on how the discount affects the break‑even point.
(d)
Based on your calculations, recommend a pricing or discount policy for the retailer that balances competitiveness with profitability. Justify your recommendation in 2–3 sentences.
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Question 6 View Details
A wholesale trader purchases electronic accessories from a manufacturer and sells them to retail outlets. The following data apply for a typical year: - Purchase price per unit: ₦30,000 - Annual demand (D): 10,000 units - Ordering (setup) cost per order (S): ₦20,000 - Holding cost rate: 10 % of the unit purchase price per year (H = 0.10 × ₦30,000 = ₦3,000 per unit) - The trader can choose to order either 500 units or 800 units each time. Answer the following questions:
Question Parts
(a)
Calculate the total annual cost (purchase cost + ordering cost + holding cost) if the trader orders 500 units each time.
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Question 7 View Details
A group of university graduates plans to start a technology enterprise that will develop mobile applications. The founders are considering the legal form that the business should take.
Question Parts
(a)
Identify the three principal forms of business organisation recognised in Nigeria.
(b)
For each of the forms identified in part (a), discuss two major advantages and two major disadvantages in the context of a start‑up technology enterprise.
(c)
Based on the analysis in parts (a) and (b), recommend the most suitable form of organisation for the start‑up and justify your recommendation, taking into account liability, tax, control and access to finance.
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Question 8 View Details
Alpha Manufacturing Ltd intends to raise ₦50 million to expand its production capacity. The board is considering four possible sources of finance:
Question Parts
(a)
Calculate the cost of each source of finance using the data below: - Retained earnings: ₦15 million (no explicit cost). - Bank loan: ₦12.5 million at 8 % per annum interest. Corporate tax rate is 30 %. - Preference shares: ₦10 million of 5 % cumulative preference shares, issued at par. - Ordinary shares: ₦12.5 million to be raised by issuing new ordinary shares. The current market price of the shares is ₦18 per share, the expected dividend next year is ₦1.20 per share and the expected growth rate of dividends is 5 % per annum.
(b)
Using the costs obtained in part (a) and the proposed proportion of each source (30 % retained earnings, 25 % bank loan, 20 % preference shares, 25 % ordinary shares), compute the weighted average cost of capital (WACC) for the expansion project.
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Question 9 View Details
Alpha Bank offers two savings products: (i) a fixed deposit (FD) with a nominal annual interest rate of 6% payable annually, and (ii) a monthly‑interest savings account (MIS) that credits interest monthly at a nominal rate of 5.8% per annum, compounded monthly. A customer, Mrs Ade, plans to invest ₦500,000 for 3 years.
Question Parts
(a)
Calculate the amount Mrs Ade will have at the end of 3 years if she chooses the FD. Show all steps.
(b)
Calculate the amount she will have at the end of 3 years if she chooses the MIS. Show all steps, including the effective annual rate.
(c)
Based on your calculations, advise which product is financially more advantageous, and discuss two non‑financial factors that might influence her decision.
(d)
The Central Bank raises the statutory reserve requirement from 10% to 12%. Explain, using the money‑multiplier concept, how this change could affect the total amount of deposits that Alpha Bank can create from a new cash injection of ₦1,000,000.
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Question 10 View Details
Beta Insurance Co. provides a comprehensive motor insurance policy for private cars. The annual premium is calculated using the formula: Premium = Base Rate × (1 + Risk Factor) + Administrative Charge. The Base Rate is ₦12,000 for a standard car. The Risk Factor depends on the driver’s age and claim history: drivers aged 25–35 have a risk factor of 0.20; each previous claim in the last 3 years adds 0.10 to the risk factor. The Administrative Charge is a fixed ₦2,500. A customer, Mr Okoro, aged 30, has had two claims in the past three years. He wishes to insure a car valued at ₦2,500,000. The policy includes a “no‑claim bonus” (NCB) of 5% of the premium for each claim‑free year, up to a maximum of 25%. The insurer also offers a term life insurance policy with a sum assured of ₦5,000,000, payable on death. The annual premium for the life policy is calculated using the equivalence principle: Premium = (Sum Assured × Mortality Rate) / (1 – Mortality Rate) + Loading of 15% of the net premium. The mortality rate for a 30‑year‑old male is 0.0012.
Question Parts
(a)
Determine Mr Okoro’s initial annual motor‑insurance premium before any NCB.
(b)
Assuming he has no claims for the next three consecutive years, calculate the premium he would pay in the fourth year after applying the NCB (maximum 25%). Show the calculation.
(c)
Compute the annual premium for the term life policy described above.
(d)
Discuss two advantages and two disadvantages of bundling motor and life insurance policies for both the insurer and the policyholder.
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