CES CES Export Pricing & Incoterms 1 — Questions and Answers
Question 1: Which costing method adds all direct costs plus a fixed percentage markup to arrive at an export selling price?
- Marginal cost pricing
- Cost-plus pricing (Correct answer)
- Competitive pricing
- Transfer pricing
Correct answer: Cost-plus pricing
Cost-plus pricing calculates total production and export costs, then adds a predetermined profit margin to set the export price.
Question 2: What is 'price escalation' in export pricing?
- Raising prices annually to match domestic inflation
- The increase in the final foreign market price caused by adding export costs (freight, duties, margins) (Correct answer)
- A surcharge applied for expedited delivery
- Adjusting prices upward due to favorable exchange rates
Correct answer: The increase in the final foreign market price caused by adding export costs (freight, duties, margins)
Price escalation occurs when export costs — freight, insurance, tariffs, and distributor margins — stack up and push the foreign retail price far above the domestic price.
Question 3: What is a 'transfer price' in the context of US multinational export transactions?
- The freight rate charged to move goods between US warehouses
- The price charged between related entities (e.g., parent and subsidiary) for goods or services (Correct answer)
- The customs value declared at the port of entry
- The spot exchange rate used to invoice in foreign currency
Correct answer: The price charged between related entities (e.g., parent and subsidiary) for goods or services
Transfer pricing refers to the prices set on transactions between affiliated companies, which can affect taxable income allocation across countries.
Question 4: Under the Incoterms 2020 rule EXW (Ex Works), who is responsible for loading the goods onto the buyer's vehicle at the seller's premises?
- The freight forwarder
- The buyer (Correct answer)
- The seller
- The customs broker
Correct answer: The buyer
Under EXW, the seller's only obligation is to make the goods available at their premises; the buyer bears all costs and risks from that point, including loading.
Question 5: Which pricing strategy sets a low initial export price to quickly gain market share in a new foreign market?
- Skimming pricing
- Penetration pricing (Correct answer)
- Parity pricing
- Administered pricing
Correct answer: Penetration pricing
Penetration pricing uses a low introductory price to attract buyers and build market share rapidly before gradually raising prices.
Question 6: Which Incoterms 2020 rule is recommended for containerized ocean shipments instead of FOB?
- CFR
- CIF
- FCA (Correct answer)
- DAP
Correct answer: FCA
FCA (Free Carrier) is recommended for containerized cargo because it transfers risk at the inland terminal or container yard before loading, aligning with modern logistics.
CES CES Export Pricing & Incoterms 1
Which costing method adds all direct costs plus a fixed percentage markup to arrive at an export selling price?