waec model questions vol1 2020 commerce | Essay

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Question 1 View Details
The Nigerian economy relies heavily on commerce activities. Money performs three essential functions – as a medium of exchange, a unit of account and a store of value – which facilitate commercial transactions. A small retailer purchased inventory worth ₦120,000 on 30‑day credit and sold the goods for ₦180,000 cash within 20 days. The retailer is charged a 5 % monthly interest on credit purchases.
Question Parts
(a)
Explain how each function of money (medium of exchange, unit of account, store of value) contributes to the smooth operation of commerce.
(b)
Calculate the total interest payable on the credit purchase.
(c)
Determine the net profit earned by the retailer after accounting for interest.
(d)
Evaluate how the availability of credit influences the retailer’s cash flow and business decisions.
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Question 2 View Details
Nigeria imports wheat and exports cocoa. In a given year the country imported 1.2 million tonnes of wheat at an average world price of $250 per tonne and exported 0.8 million tonnes of cocoa at an average world price of $2,500 per tonne. The average exchange rate during the year was ₦410 per $. The government imposes a 10 % export tax on cocoa and offers a 5 % rebate on import duties for wheat if the total value of wheat imports exceeds ₦100 million.
Question Parts
(a)
Compute the total value in Naira of wheat imports before any rebate.
(b)
Determine the rebate amount (if any) and the net value of wheat imports after the rebate.
(c)
Calculate the gross export earnings from cocoa before tax, then the net earnings after the 10 % export tax.
(d)
Based on the net export earnings and net import expenditure, compute the trade balance (exports minus imports) for the year.
(e)
Discuss two ways the government could improve the trade balance, linking your answer to the concepts of comparative advantage and value addition.
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Question 3 View Details
A trader in Lagos deals in electronic gadgets. In January, he purchased 200 units of a model of smartphone at a listed price of ₦25,000 per unit. The supplier offered a cash discount of 5% on the total invoice if payment is made within 10 days, and a further trade discount of 3% on the amount after the cash discount. The trader also incurs a fixed overhead cost of ₦300,000 for the month (rent, salaries, utilities).
Question Parts
(a)
Calculate the total cost incurred by the trader for the 200 units, including the two discounts and the overheads.
(b)
The trader wishes to earn a profit of 20 % on the total cost (including overheads). Determine the selling price per unit he should set.
(c)
If the market will only bear a maximum selling price of ₦30,000 per unit, calculate the minimum number of units the trader must sell to at least break even (i.e., to cover total cost). State whether the target profit of 20 % is achievable under this market constraint.
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Question 4 View Details
A Nigerian importer plans to import 10,000 kg of cocoa beans from Ghana. The world market price is US$2.50 per kilogram. The current official exchange rate is ₦750 per US$. The bank charges a commission of 1.5 % on the foreign‑exchange transaction and a foreign‑exchange surcharge of ₦0.10 per US$ converted. The import duty on cocoa beans is 5 % of the customs value (CIF). Additionally, a tariff of 2 % is imposed on the total customs value after duty.
Question Parts
(a)
Compute the total amount in Naira that the importer must pay to acquire the cocoa beans, including purchase cost, bank charges, surcharge, import duty and tariff.
(b)
If the importer intends to sell the imported cocoa beans at a profit margin of 25 % on the total landed cost (the amount computed in part a), determine the selling price per kilogram in Naira.
(c)
Suppose the naira depreciates by 8 % against the dollar before the payment is made, while the world price of cocoa remains unchanged. Re‑calculate the total landed cost and the new selling price per kilogram required to maintain the same 25 % profit margin. Comment on the effect of the depreciation on the importer’s pricing strategy.
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Question 5 View Details
A retail store sells a single product. The list selling price of the product is ₦5,000 per unit. The variable cost (including purchase price, transport and handling) is ₦3,200 per unit. Fixed operating costs amount to ₦720,000 per month. The store currently sells 600 units each month at the list price. The store is considering two pricing alternatives: 1. Offer a 10 % discount on the selling price and, based on market research, expect a 20 % increase in the quantity sold. 2. Review its markup policy, which is currently based on cost. Industry reports indicate that the average markup on cost for similar products is 50 %. Answer the following questions:
Question Parts
(a)
Calculate the contribution margin per unit and the break‑even output in units.
(b)
If the store continues to sell 600 units at the list price, determine the monthly profit.
(c)
Assuming the 10 % discount is granted and sales rise by 20 % (i.e., to 720 units), calculate the new monthly profit and state whether the discount policy improves profitability.
(d)
Compute the current markup on cost and comment on its suitability relative to the industry average of 50 %.
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Question 6 View Details
A wholesaler purchases a product from a manufacturer. The list price is ₦8,000 per unit and the wholesaler orders 1,000 units. The manufacturer grants a trade discount of 12 % on the list price. If the wholesaler pays within 10 days, a cash discount of 2 % is allowed on the net amount after trade discount; otherwise payment is due in 30 days with no cash discount. The wholesaler adds a markup of 30 % on the net purchase cost to determine the selling price to retailers. Fixed operating costs amount to ₦1,200,000 per month. Handling cost of ₦200 per unit is incurred after the purchase. Answer the following questions:
Question Parts
(a)
Determine the net purchase cost per unit after the 12 % trade discount.
(b)
If the wholesaler takes the cash discount, compute the effective cost per unit (including handling).
(c)
Compute the selling price per unit to retailers (based on the net purchase cost before cash discount) and the contribution margin per unit.
(d)
Using the contribution margin from part (c), calculate the break‑even volume in units for the wholesaler.
(e)
Discuss the impact of offering the 30‑day credit (no cash discount) on the wholesaler’s cash flow and profitability, and recommend which payment term should be adopted.
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Question 7 View Details
A small manufacturing firm, Alpha Widgets Ltd., is being set up by three entrepreneurs. They are considering operating as a partnership or converting to a limited liability company (LLC). The partners have contributed capital as follows: Partner A – ₦300,000, Partner B – ₦200,000, Partner C – ₦500,000. The firm expects a total profit before distribution of ₦1,200,000 for the year. The partners agree that interest on capital will be charged at 5 % per annum and that Partner B, who will act as the managing partner, will receive a fixed salary of ₦100,000. The remaining profit will be shared in proportion to the capital contributions.
Question Parts
(a)
Explain two major advantages and two major disadvantages of operating as a partnership compared with a limited liability company for Alpha Widgets Ltd.
(b)
Calculate the amount each partner will receive after accounting for interest on capital, the managing partner’s salary and the agreed profit‑sharing ratio.
(c)
Discuss the procedure for dissolving the partnership under the Companies and Allied Matters Act (CAMA) if the partners decide to terminate the business.
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Question 8 View Details
Beta Traders Ltd. plans to raise ₦5,000,000 to expand its operations. The management is evaluating four sources of finance: (i) a bank loan, (ii) issuing 10‑year debentures, (iii) issuing new ordinary shares, and (iv) leasing the required equipment. The firm wishes to retain full managerial control and avoid excessive interest costs.
Question Parts
(a)
Analyse the four sources of finance listed above, commenting on (i) cost of finance, (ii) impact on control of the business, (iii) risk to the firm and (iv) typical repayment or return arrangements.
(b)
Given the firm’s desire to retain control and minimise interest expense, recommend the most suitable source of finance and justify your choice.
(c)
If Beta Traders Ltd. instead opts for the bank loan at 12 % per annum payable over 5 years with equal annual repayments, calculate the amount of each annual payment (use the amortisation formula). Show all steps.
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