Duty-Related Costs of Locating in an FTZ Aranda Company is an import-export company that relocated earlier this year in a foreign trade zone (FTZ) in a southwestern city. The company imports $760,000 of fabric from overseas for re clothing companies located in the United States. Aranda purchases and receives the fabric about four months before it is sold and shipped to customers; customers are billed and pay in two mo Duty is assessed at 15 percent of cost, and Aranda faces a 6 percent carrying cost. Required: 1. What is the amount of duty paid by Aranda last year (before locating in the FTZ) and for this year after relocating to the FTZ? Last Year This Year Duty 2. What is the amount of carrying cost associated with the duty paid by Aranda last year and for this year after relocating to the FTZ? Last Year This Year Carrying cost of duty 3. What is the total duty-related cost for Aranda last year and for this year after relocating to the FTZ? Last Year This Year Total duty-related cost 4. What is the total savings on duty and carrying cost attributable to locating in an FTZ? 5. What if some of the fabric turned out to be defective and had to be disposed of before sale and shipment to customers? Would it be more or less advantageous to be located in an FTZ in this c Why or why not? If some of the fabric was defective and be sold, duty be owed in the FTZ and total duty and duty-related costs be lower
Duty-Related Costs of Locating in an FTZ Aranda Company is an import-export company that relocated earlier this year in a foreign trade zone (FTZ) in a southwestern city. The company imports $760,000 of fabric from overseas for re clothing companies located in the United States. Aranda purchases and receives the fabric about four months before it is sold and shipped to customers; customers are billed and pay in two mo Duty is assessed at 15 percent of cost, and Aranda faces a 6 percent carrying cost. Required: 1. What is the amount of duty paid by Aranda last year (before locating in the FTZ) and for this year after relocating to the FTZ? Last Year This Year Duty 2. What is the amount of carrying cost associated with the duty paid by Aranda last year and for this year after relocating to the FTZ? Last Year This Year Carrying cost of duty 3. What is the total duty-related cost for Aranda last year and for this year after relocating to the FTZ? Last Year This Year Total duty-related cost 4. What is the total savings on duty and carrying cost attributable to locating in an FTZ? 5. What if some of the fabric turned out to be defective and had to be disposed of before sale and shipment to customers? Would it be more or less advantageous to be located in an FTZ in this c Why or why not? If some of the fabric was defective and be sold, duty be owed in the FTZ and total duty and duty-related costs be lower
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Duty-Related Costs of Locating in an FTZ
Aranda Company is an import-export company that relocated earlier this year in a foreign trade zone (FTZ) in a southwestern city. The company imports $760,000 of fabric from overseas for resall
clothing companies located in the United States. Aranda purchases and receives the fabric about four months before it is sold and shipped to customers; customers are billed and pay in two month
Duty is assessed at 15 percent of cost, and Aranda faces a 6 percent carrying cost.
Required:
1. What is the amount of duty paid by Aranda last year (before locating in the FTZ) and for this year after relocating to the FTZ?
Last Year
This Year
Duty
2. What is the amount of carrying cost associated with the duty paid by Aranda last year and for this year after relocating to the FTZ?
Last Year
This Year
Carrying cost of duty
3. What is the total duty-related cost for Aranda last year and for this year after relocating to the FTZ?
Last Year
This Year
Total duty-related cost
4. What is the total savings on duty and carrying cost attributable to locating in an FTZ?
5. What if some of the fabric turned out to be defective and had to be disposed of before sale and shipment to customers? Would it be more or less advantageous to be located in an FTZ in this case
Why or why not?
If some of the fabric was defective and
be sold, duty
be owed in the FTZ and total duty and duty-related costs
be lower
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Step 1: Free Trade Zone (FTZ):
VIEWStep 2: (1) Determine the amount of duty paid by Aranda this year and last year:
VIEWStep 3: (2) Determine amount of carrying cost associated with the duty paid this year and last year:
VIEWStep 4: (3) Determine the total duty-related cost for Aranda last year and for this year:
VIEWStep 5: (4) Determine the total savings on duty and carrying cost attributable to locating in an FTZ:
VIEWStep 6: (5) Analysis and Recommendation:
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