Class Quiz

International Management - Venky Pony

Question – 1 (C is cost, P is profit, G is gross, FOB is freight / free on board)

1. Ex Factory Cost = INR 1,30,000 (Excluding Marketing Cost); Ex Factory cost is the cost up to the gates of the factory

2. Export Marketing Cost (Cost of marketing incurred in international location where product is to be shipped) = INR 30,000

3. Transportation cost up to on board the ship = Rs 40,000

4. All costs up to on board the ship is called FOB (C)

5. Assume a profit of 25% of FOB (C)

6. Net FOB (P) + Incentives = FOB (C) + Profit

7. Incentives = 10%

8. Incentives are calculated as a % of Net FOB (P)

9. Agents commission = 5% & is calculated as a % of G FOB (P)

10. G FOB (P) – Agent’s Commission = Net FOB (P)

11. Freight = INR 10,000

12. Insurance Premium = 10% of insured value and insured value is 110% of CIF (P)

13. CIF (P) = G FOB (P) + Insurance Premium + Freight

Calculate CIF (P)

Solution –

Let Net FOB (P) be X (Using Equation 6)

Then X + 0.10 X = (1,30,000 + 30,000 + 40,000) + 25% * (1,30,000 + 30,000 + 40,000)

X = 227272

Let Y = G FOB (P) (Using Equation 10)

Y – 0.05 Y = X

Y = 239234

Let Z = CIF (P) (Using Equation 13)

Z = Y + (1%) * (110%) * (Z)

Z = 252006