Question

Company A in the US enters into a standard manufacturing license allowing Company B to use its technology to make washing machines and sell them in Venezuela. There is an upfront license fee of $100,000 and then Company A receives a % royalty on all sales (exclusive of sales taxes) generated by Company B. In the first year, those sales total $1,000,000, and the amounts actually collected from sales by Company B is $800,000. Given this information, what is the total amount of money payable by Company B to Company A under this license?

Answer 1

The total amount payable by Company B to Company A includes a $100,000 license fee and a percentage of the $1,000,000 in sales, with the exact total depending on the royalty rate agreed upon.

Step-by-step explanation:

When Company A in the US enters into a licensing agreement with Company B to manufacture and sell washing machines in Venezuela, Company B is required to pay the upfront license fee in addition to royalties based on sales. The total amount of money payable under this license in the first year includes an upfront license fee of $100,000 and a percentage of the annual sales, which is $1,000,000. The exact amount of royalties depends on the agreed percentage, which is not specified in the information provided. However, if we assume a royalty rate (for the sake of illustration), let's say 5%, Company B would owe an additional $50,000 ($1,000,000 x 0.05) in royalties. Thus, the total amount payable would be $150,000 ($100,000 + $50,000). It is important to note that royalties are calculated on sales, not on the amounts collected unless the agreement specifies otherwise.