Neco Model Questions Vol1 2020 Commerce Question 4

Practice essay / theory question 4 from the 2020 Neco Model Questions Vol1 Commerce examination. This question covers Foreign Trade .

Neco Model Questions Vol1 2020 Commerce Essay / Theory
Topic: Foreign Trade
Question 4 NECO_MODEL_QUESTIONS_VOL1 • 2020 • COMMERCE • essay

A Nigerian trading company imports 20,000 kg of cocoa beans from Ghana for processing. The following data apply: - CIF price in Ghanaian cedi (GHS) = GHS 45 per kg. - Exchange rate at the time of purchase: 1 GHS = ₦55. - Freight from the Ghanaian port to Lagos port (paid by the exporter) = included in CIF. - Insurance premium (1% of CIF value) is payable in Nigeria in Naira. - Import duty = 5% of CIF value (converted to Naira). - Value Added Tax (VAT) = 7.5% of (CIF value + duty + insurance). - The company uses the FOB term for a future shipment of finished chocolate bars to the United Kingdom. The FOB price per kg of chocolate bars is projected to be ₦1,200. - Desired profit margin on the export sale is 20% of the total landed cost. Answer the following questions:

Question Parts

( a )
Calculate the total landed cost (in Naira) of the imported cocoa beans, showing all intermediate steps.
( b )
If the Naira depreciates by 5% against the Ghanaian cedi after the purchase, recalculate the landed cost in Naira and explain the impact on the company’s profitability.
( c )
Compare the advantages and disadvantages of using FOB versus CIF terms for the company’s future export of processed chocolate bars to the United Kingdom.
( d )
The company intends to sell the processed chocolate bars at an FOB price that yields a 20% profit margin over the total landed cost of the raw cocoa beans (as calculated in part a). Determine the required FOB price per kg of chocolate bars.

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About This Question

This is Neco Model Questions Vol1 2020 Commerce Question 4. It is one of the essay questions from the 2020 Neco Model Questions Vol1 Commerce examination.

The question covers Foreign Trade .

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