K-POP CAR COMPANY

May 28, 2022

TEAM MEMBERS

1. Leslie Abalos
2. Daryl Cruz
3. Cristy Fernandez
4. Josielyn Fetalvero
5. Maricris Moog
6. Mark Joseph Ortiz
7. Anna Marie Teves

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PROBLEM STATEMENT

• Due to its former low-end reputation, the brand had not won many
followers in the markets outside Korea and the USA

• K-Pop Car Company had no high-end recognition in Europe and Australia

• Due to all of the export costs and profit mark-up, there is significant price
escalation , and the independent agents are now complaining that the
price-value advantage of the GenX product is not competitive against
Japanese products

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SOLUTION:
Required 1: Calculate the FOB, C&F, CI&F and FIS
Per Unit Per Car In US$
Material (Variable) 10,000
Variable Conversion Costs 5,500
Fixed Conversion Costs 14,500
Total Costs 30,000
Profit Mark-up (30% on Cost) 9,000
Selling Price 39,000
Local Freight to Ship 1,000
Free on Board (FOB) 40,000
Freight 2,000
Cost and Freight (C&F) 42,000
Insurance 500
Cost Insurance and Freight (CIF) 42,500
GST (10% of FOB) 10% 4,000
Import Taxes & Tarriffs (20% of CIF) 20% 8,500
Clearance Fees 500
Local Freight to Importer's Warehouse 1,000
Free into Store (FIS) 56,500

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SOLUTION:

Per Unit Per Car In US$

Free into Store (FIS) 56,500 Required 2:
GST Rebate -4,000
Importer profit mark-up when transferred to State Franchise 25% 13,125 Calculate the final selling price to the
10% GST on Sales 7,736 Australian Buyer (inclusive of GST) and the
Wholesaler - State Franchise 73,361 percentage escalation as against the selling
GST Rebate -7,736 price of the car in Korea.
State Franchise (Wholesaler) profit mark-up when trasferred to Agent 25% 16,406
10% GST on Sales 9,115
Agent 91,146 Answer:
GST Rebate -9,115
Final selling price to Australian buyer at
Agent (Retailer) profit mark-up when sold to customer 50% 41,016
US$136,719, which translates to 219%
10% GST on Sales 13,672
increase from the domestic price
Selling Price to Australian Buyer 136,719
Selling Price in Korea (inclusive of VAT) 42,900
Increase on Price 93,819
Percentage of Price Escalation 219%

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SOLUTION:
Required 3:
Make recommendations as to how the K-POP Car Company can make the GenX more price competitive in the
Australian market and the dangers involved in some of the recommendations provided to reduce prices

Recommendations:

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 SOLUTION
Sensitivity Analysis
Per Unit Per Car In US$ In US$
Material (Variable) 10,000 10,000 Sensitivity Analysis:
Variable Conversion Costs 5,500 5,500
Fixed Conversion Costs 14,500 14,500 Calculate the profit margin that K-Pop will
Total Costs
Profit Mark-up (30% on Cost) 30%
30,000
9,000 12%
30,000
3,650
have to accept if it wants the car to sell in
Selling Price 39,000 33,650 Australia to customers for approx. $120,000
Local Freight to Ship 1,000 1,000
Free on Board (FOB) 40,000 34,650
(end-user price)
Freight 2,000 2,000
Cost and Freight (C&F) 42,000 36,650
Insurance 500 500
Cost Insurance and Freight (CIF) 42,500 37,150 Answer:
GST (10% of FOB) 10% 4,000 10% 3,465
Import Taxes & Tarriffs (20% of CIF) 20% 8,500 20% 7,430 K-Pop will have to lower its profit margin
Clearance Fees 500 500 from 30% to 12.167%
Local Freight to Importer's Warehouse 1,000 1,000
Free into Store (FIS) 56,500 49,545
GST Rebate -4,000 -3,465
Importer profit mark-up when transferred to State Franchise 25% 13,125 25% 11,520
10% GST on Sales 7,736 6,785
Wholesaler - State Franchise 73,361 64,385
GST Rebate -7,736 -6,785
State Franchise (Wholesaler) profit mark-up when trasferred to Agent 25% 16,406 25% 14,400
10% GST on Sales 9,115 8,000
Agent 91,146 80,000
GST Rebate -9,115 -8,000
Agent (Retailer) profit mark-up when sold to customer 50% 41,016 50% 36,000
10% GST on Sales 13,672 12,000
Selling Price to Australian Buyer 136,719 120,000

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