Procedures Procedures Procedures ment20Chapter202pdf Group A

ment%20Chapter%202.pdf Group Assignment Chapter 2 ABC Trading Co, Vietnam (The Seller) offers coffee of 3,000 tons for DNZ Trading Co., Japan (The Buyer) at selling prices under the trade terms, as follows: - FOB Saigon port is 700,000USD; CIF Tokyo port is 850,000USD; DAP buyer\'s warehouse in Tokyo is 950,000USD. Freight including loading fee to bring the goods from Saigon port to Tokyo port is 150,000USD. Transportation cost including loading and unloading fee to bring the goods from Tokyo port to the buyer\'s warehouse is 80,000 USD; Insurance rate: 0.2%. Import duty: 5% based on FOB. 1. What the selling price does the buyer choose? Why? 2. If the buyer wants to buy under the term of DDP, What must the seller pay costs and bear risks under the term of DDP at the buyer\'s warehouse in Tokyo? 3. What are main differences between DAP and DDP at buyer\'s warehouse in Tokyo?

Solution

Solution 1:

Price at FOB Saigon Port = $700,000

CIF Price at Tokyo Port = $850,000

DAP Price buyer\'s warehouse = $950,000

If buyer choose FOB Price then buyer to incur freight from singapore to Tokyo port for $150,000 and transportation from tokyo port to buyer\'s warehouse for $80,000 and insurance for $1,400 ($700,000*0.2%)

Therefore Net cost to buyer under FOB (excluding import duty) = $700,000 + $150,000 + $80,000 + $1,400 = $931,400

If buyer choose CIF Price then buyer to incur transportation from tokyo port ot buyer\'s warehouse for $80,000

Therefore net cost to buyer under CIF (excluding import duty) = $850,000 + $80,000 = $930,000

Net cost to buyer under DAP Price (excluding import duty) = $950,000

Hence cost to buyer is minimum when he accpet CIF rate to tokyo port. Therefore buyer should choose CIF price.

Solution 2:

If the buyer want to buy under the term of DDP (Delivery Duty Paid) then seller have to bear import duty to be paid at Tokyo port which is $35,000 ( $700,000*5%). Under DDP, selling cost includes all expenses including duty or tax up to the buyer’s place.

Solution 3:

Under DAP (Delivery at place) terms of delivery, all delivery expenses up to the place of buyer\'s place Tokyo is borne by the seller except duty or tax of importing country. However under DDP (Delivery duty paid) terms of delivery, all delivery expense including duty or tax of importing country up to place of buyer\'s place tokyo is borne by seller.