WAEC SSCE - Commerce - 2002 (Essay)

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(a) Five functions performed by the wholesaler in the channel of distribution

1. Breaking bulk: He buys goods in large quantities from manufacturers and sells them in smaller quantities to retailers.
2. Storage (warehousing): He stores goods in his warehouse and releases them steadily, thereby bridging the time gap between production and consumption.
3. Provision of finance: He gives credit to retailers and pays cash to manufacturers, thereby financing both sides of the trade.
4. Bearing of risk: He bears risks such as fall in prices, damage, deterioration and spoilage while the goods are in his possession.
5. Transportation: He arranges for the movement of goods from the manufacturer to his warehouse and from there to the retailers.

Other functions include grading, packaging, branding and giving market information to manufacturers.

(b) Five factors that encourage the elimination of middlemen from the channel of distribution

1. Direct selling by producers: Manufacturers who sell directly to consumers through their own outlets or online remove the need for middlemen.
2. High cost of middlemen's services: The profit margins added by middlemen raise prices, so firms bypass them to reduce cost.
3. Growth of large-scale retailers: Big supermarkets and multiple shops buy directly from manufacturers in bulk, doing the wholesaler's work themselves.
4. Consumer cooperative societies: These buy directly from producers on behalf of members, cutting out the middlemen.
5. Improved communication and technology: The internet and e-commerce allow producers and consumers to deal directly without intermediaries.

Perishable goods that must reach consumers quickly also encourage direct sale.

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(a) Four characteristics of a co-operative society

1. Open and voluntary membership: Membership is open to all who are qualified and can be joined or left freely.
2. Democratic control: It operates on the principle of one member, one vote, irrespective of the number of shares held.
3. Service (not profit) motive: Its main aim is to serve and promote the welfare of members rather than to make maximum profit.
4. Sharing of surplus as dividend: Any surplus made is shared among members, usually in proportion to their patronage or savings.

Other characteristics include registration under the cooperative law and limited interest on capital.

(b) Three types of co-operative society

1. Consumer cooperative society: Formed by consumers who join together to buy goods in bulk directly from producers and sell to members at fair prices, thereby eliminating middlemen and reducing costs.
2. Producer (marketing) cooperative society: Formed by producers such as farmers who come together to obtain inputs, process and market their produce jointly and secure better prices for their goods.
3. Cooperative thrift and credit society: Formed by people who save regularly together so that members can obtain loans at low interest rates to meet their needs.

Other types include cooperative wholesale societies and multi-purpose cooperative societies.

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(a) What is a Chamber of Commerce?

A Chamber of Commerce is a voluntary association of business people, traders, manufacturers and firms in a town, region or country, formed to protect, promote and advance the common commercial interests of its members and to encourage the growth of trade and industry in the area.

(b) Six functions of a Chamber of Commerce

1. It protects and promotes the common trading interests of its members.
2. It provides commercial information and advice to members on trade, markets and business opportunities.
3. It represents the views of the business community to the government and makes recommendations on trade policy, taxation and legislation.
4. It settles trade disputes among members through arbitration.
5. It organises trade fairs, exhibitions and trade missions to promote local and foreign trade.
6. It issues certificates of origin and other documents needed by members in foreign trade.

(c) Three functions of a Manufacturers Association

1. It protects and promotes the common interests of manufacturers and presents their views to the government.
2. It advises members on production, standards and technical matters and encourages the growth of local industries.
3. It negotiates with government and labour on policies, incentives and conditions affecting manufacturing.

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(a) Explanation of terms

1. Turnover: The total value of net sales made by a business during a given trading period.
2. Rate of turnover (rate of stockturn): The number of times the average stock held is sold and replaced within a trading period. It is found by dividing the cost of goods sold by the average stock.
3. Net profit: The profit left after deducting all operating expenses from the gross profit; that is, gross profit less expenses.

(b) Calculations

(i) Cost of goods sold (COGS)

COGS = Opening stock + Purchases - Closing stock

COGS = N1,000 + N10,000 - N5,000 = N6,000

(ii) Rate of turnover

Average stock = (Opening stock + Closing stock) ÷ 2 = (1,000 + 5,000) ÷ 2 = N3,000

Rate of turnover = COGS ÷ Average stock = 6,000 ÷ 3,000 = 2 times

(iii) Net profit

Gross profit = Sales - COGS = 15,000 - 6,000 = N9,000

Net profit = Gross profit - Expenses (wages) = 9,000 - 1,000 = N8,000

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(a) What is an advertising medium?

An advertising medium is the channel or means through which an advertising message is carried and communicated from the advertiser to the target audience or potential customers.

(b) Eight advertising media

1. Newspapers
2. Magazines
3. Radio
4. Television
5. Posters and billboards (hoardings)
6. Handbills and leaflets
7. Direct mail (letters, catalogues)
8. The internet and social media

(c) Five factors to consider before choosing an advertising medium

1. Nature of the product: Technical goods may need media that allow demonstration, while everyday goods suit mass media.
2. Target audience: The medium chosen must reach the particular group of people the product is meant for.
3. Cost of the medium: The expense must be within the firm's advertising budget and justified by returns.
4. Coverage or reach: Whether the message is meant for a local, national or international audience influences the choice.
5. Literacy level of the audience: For illiterate people, audio-visual media like radio and television are more effective than print.

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Two uses of each document:

(a) Price list

• It informs prospective buyers of the current prices of goods offered for sale.
• It helps a buyer to compare prices and prepare an order or enquiry.

(b) Delivery note

• It accompanies goods sent to the buyer and lists the items delivered.
• It is signed by the buyer as evidence that the goods were received.

(c) Consignment note

• It accompanies goods handed to a carrier (for example rail or road) and gives details of the goods and destination.
• It serves as a receipt and evidence of the contract of carriage between sender and carrier.

(d) Advice note

• It notifies the buyer in advance that the goods ordered have been dispatched and are on the way.
• It enables the buyer to prepare to receive and check the goods on arrival.

(e) Proforma invoice

• It is sent to a prospective buyer to show the price and terms of goods so the buyer can decide to place a firm order.
• It is used to request advance payment or when goods are sold on a cash-with-order basis, and to help clear goods through customs.

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(a) Five measures taken to restrict imports

1. Import duties (tariffs): Imposing high customs duties on imported goods raises their prices and discourages their purchase.
2. Import quotas: Fixing a maximum quantity of a commodity that may be imported within a period limits inflow.
3. Import licensing: Requiring traders to obtain a licence before importing restricts the number and volume of imports.
4. Total ban (embargo): Prohibiting the importation of certain goods entirely keeps them out of the country.
5. Foreign exchange control: Limiting the foreign currency made available to importers reduces their ability to buy from abroad.

(b) Five measures taken to promote exports

1. Export subsidies: Government grants and financial assistance lower the cost of production, making exports cheaper and competitive abroad.
2. Devaluation of currency: A lower value of the domestic currency makes exports cheaper to foreign buyers, boosting demand.
3. Removal or reduction of export duties: Abolishing taxes on exports increases the profit of exporters and encourages them.
4. Export promotion agencies and trade fairs: Setting up bodies and organising international trade fairs advertise home products abroad.
5. Improved infrastructure and export credit: Providing good ports, roads and cheap credit facilities to exporters eases and encourages exporting.

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(a) Four ways registered mail differs from ordinary mail

1. Record of posting: Registered mail is recorded and a receipt issued at the post office, whereas ordinary mail is posted without any record.
2. Compensation: The sender of registered mail is entitled to compensation if it is lost or damaged, while ordinary mail carries no such guarantee.
3. Cost: Registered mail attracts an extra fee in addition to normal postage, whereas ordinary mail requires only the ordinary stamp.
4. Signature on delivery: Registered mail must be signed for by the receiver as proof of delivery, while ordinary mail is simply dropped in the box or handed over without a signature.

(b) Transporting goods by rail

Two advantages

1. It is suitable for carrying heavy and bulky goods over long distances at relatively low cost.
2. It is fast and runs to a fixed timetable, and is less affected by traffic congestion.

Two disadvantages

1. It offers no door-to-door service, so goods must be moved to and from the station by other means.
2. It follows a fixed route and cannot reach places not served by a railway line, and it is unsuitable for small or urgent consignments.

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(a) Four reasons why retail shops adopt self service

1. To reduce cost of operation: Fewer shop assistants are needed since customers serve themselves, so wage costs are lowered.
2. To serve more customers quickly: Self service speeds up shopping and reduces queues, so many customers can be attended to within a short time.
3. To encourage impulse buying: When goods are openly displayed and customers can handle them, they are tempted to buy more than they planned.
4. To give customers freedom of choice: Customers can move around, compare goods and select at their own pace without being pressured by salesmen.

It also helps the shop to sell in large volume at lower prices.

(b) Six facilities that a retail shop should have to encourage self service

1. Open shelves and display racks: Goods should be arranged on open shelves where customers can see, reach and pick them easily.
2. Shopping baskets and trolleys: These should be provided so that customers can carry the goods they select as they move round the shop.
3. Price tags and labels: Every item should be clearly priced and labelled so that customers know the price without asking.
4. Checkout (paying) points: There should be cash tills or checkout counters near the exit where customers pay for all their selected goods at once.
5. Wide aisles and good layout: There should be spacious, well-arranged passages so that customers can move about freely with their trolleys.
6. Security devices: Facilities such as closed-circuit cameras, mirrors and security tags should be provided to guard against shoplifting.

Good lighting, air conditioning and directional signs also help self service.

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(a) Explanation of insurance terms

• (i) Consequential loss: This is the indirect loss of profit or income that a business suffers as a result of an insured event, rather than the direct physical damage itself. For example, when a factory is destroyed by fire, the loss of profit during the period the business is unable to operate is a consequential loss. It can be covered by a consequential loss (loss of profit) policy.
• (ii) Cover note: A cover note is a temporary document issued by an insurer to the insured as proof that a contract of insurance is in force, pending the preparation and issue of the full policy document. It gives the insured immediate protection while the formalities of the policy are being completed.

(b) Four advantages of re-insurance to a businessman

1. It gives the businessman greater security, because the insurer he deals with is itself protected and is therefore more able to pay large claims.
2. It makes it possible for very large or high-value risks to be insured, since the risk is spread among several insurers.
3. It increases the businessman's confidence that his claim will be settled in full even where the loss is very large.
4. It promotes the stability of insurance companies, ensuring that the businessman's insurer will not easily collapse after paying a heavy claim.