Concept explainers
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?
Want to see the full answer?
Check out a sample textbook solutionChapter 13 Solutions
EBK MANAGERIAL ACCOUNTING: THE CORNERST
- Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell Moore, controller for Global Reach, has been reading about the advantages of foreign trade zones. He wonders if locating in one would be of benefit to his company, which imports about 90 percent of its merchandise (e.g., chess sets from the Philippines, jewelry from Thailand, pottery from Mexico, etc.). Darnell estimates that the new warehouse will store imported merchandise costing about 16.78 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling) is about 8 percent of the total. The average tariff rate on these imports is 5.5 percent. Required: 1. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in tariffs? Why? (Round your answer to the nearest dollar.) 2. Suppose that, on average, the merchandise stays in a Global Reach warehouse for nine months before shipment to retailers. Carrying cost for Global Reach is 6 percent per year. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.) 3. Suppose that the shifting economic situation leads to a new tariff rate of 13 percent, and a new carrying cost of 6.5 percent per year. To combat these increases, Global Reach has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.)arrow_forwardClassify the above cost as either, direct materials, direct labor, manufacturing overhead, selling expense, or administrative expensearrow_forwardSuppose that you have been given a summer job as an Intern at Issac Alrcams, a company that manufactures sophisticated spy cameras for remote-controlled millitary reconnalssance alrcraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financlal statements before approving the loan. Requlred: Classify each cost listed below as elther a product cost or a perlod cost for the purpose of preparing financial statements for the bank. Costs Product Cost or Period Cost 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs.…arrow_forward
- Suppose that Demont has been given a summer job as an intern at Isaac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. Classify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. Costs Product Cost/Period Cost 1. Depreciated on salesperson's cars 2. Rent on equipment used in the factory 3. Lubricants used for machine maintenance 4. Salaries of personnel who work in the finished goods warehouse 5. Soap and paper towels used by factory workers at the end of a shiftarrow_forwardWhat are some of the qualitative factors that Riverside Clippers Corp should consider when deciding whether to outsource the garden tools manufacturing to Taiwan?arrow_forwardMyers Inc. manufactures biodegradable bottles. Since this is a patented method of producing environmentally-friendly plastic, they cannot use an overseas contractor. They will make the products in the United States. What criteria would you use to assess their business model? O The production expertise scale will tell if the company is ready to partake in such a venture. O The fixed costs need to be compared to other similar companies in the U.S. The standardization of the product is making it more expensive to produce, as the copyrights are implemented. O Since the product will be outsourced, the manager needs to assess the simplicity of the supply chain. Even though the manufacturing costs are high, the transportation costs will be low. O The minimum efficient scale will tell the minimum volume they need to produce to reach economies of scale. The quality of the in-house product needs to be constantly inspected, as they will not use outside sourcing.arrow_forward
- A firm that manufactures paper is considering a project to set up a logging operation. Wood pulp generated by the project - normally an unwanted by-product of a logging operation - is an input to the paper manufacturing process. This will save the company $340,000 in wood pulp purchases, but it will cost $50,000 more to transport the wood pulp to the paper factory than it would cost to dump it as waste. How would you describe this situation in terms of the NPV analysis for the logging operation? Question 2Answer a. There is a positive externality equal to $290,000 which should be included in the NPV analysis. b. There is a positive externality equal to $340,000 which should be included in the NPV analysis. c. There is a negative externality equal to $290,000 which should be included in the NPV analysis. d. There is a negative externality equal to $340,000 which should be included in the NPV analysis.arrow_forwardPaper factories emit chemicals as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of paper production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of chemicals). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Suppose the government has determined that the socially optimal quantity of chemical pollution is 120 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price…arrow_forwardAll parts are under one question and therefore can be answered in full per your policy. 4. Analysis of a replacement project At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $600,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at…arrow_forward
- Our team is hired by Apple to help assess whether or not to continue to manufacture and sell an older model of the iPhone. Apple explains that this model continues to sell well in foreign markets but it worries that fixed costs are so large that it is difficult to earn a profit. The tableau dashboard is provided to aid our analysis of this model. Rent: 10,250,000 Supervisor Salaries: $8,500,000 Office Salaries: $6,000,000 Equipment Depriciation: $5,350,000 Property Taxes: $5,000,000 Battery: $10 Camera: $45 Internal Components: $90 Reciever: $35 Screen: $95 Speaker: $25 Sales Price Per Unit: $750arrow_forwardWhy do US corporations build manufacturing plants abroad when they could build them at US soils?arrow_forwardKunda and Sitwala Company is considering manufacturing special drill bits and other equipment for mining rigs. The proposed project is currently regarded as complementary to its other lines of business, and the company has certain expertise by virtue of its having a large mechanical engineering staff. Because of the large outlays required to get into the business, management is concerned that Kunda and Sitwala earn a proper return. Since the new venture is believed to be sufficiently different from the company’s existing operations, management feels that a required rate of return other than the company’s present one should be employed. The financial manager’s staff has identified several companies (with capital structures similar to that of Kunda and Sitwala) engaged solely in the manufacture and sale of mining drilling equipment whose common stocks are publicly traded. Over the last five years, the median average beta of these companies has been 1.28. The staff believes that 18…arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningEssentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning