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Managerial Accounting: The Corners...
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Managerial Accounting: The Corners...
Refer to Exercise 13-48. Suppose that Kamber is considering building a new plant inside a foreign trade zone to replace its chemical manufacturing plant.
Required:
- 1. How much duty will be paid per year by the factory located inside the foreign trade zone?
- 2. How much in duty and duty-related carrying costs will be saved by relocating inside the foreign trade zone?
Kamber, Inc., owns a factory located close to, but not inside, a foreign trade zone. The plant imports volatile chemicals that are used in the manufacture of chemical reagents for laboratories. Each year, Kamber imports about $14,200,000 of chemicals subject to a 30% tariff when shipped into the United States. About 15% of the imported chemicals are lost through evaporation during the manufacturing process. In addition, Kamber has a carrying cost of 10% per year associated with the duty payment. On average, the chemicals are held in inventory for 9 months.
Required:
- 1. How much duty is paid annually by Kamber?
- 2. What is the carrying cost associated with the payment of duty?
1.
Compute the amount of duty to be paid.
Foreign Trade Zone:
Foreign trade zone are the areas declared as FTZs that are located in a home country, however these are treated like foreign areas for the purpose of levying duties and taxes.
Computation of amount of duty:
| Particulars | Amount ($) |
| Imports | 14,200,000 |
|
Adjustment of loss due to evaporation |
2.
Compute savings in carrying cost and duty payable.
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