Chapter 13, Problem 49E

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. 1. How much duty will be paid per year by the factory located inside the foreign trade zone?
2. 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. 1. How much duty is paid annually by Kamber?
2. 2. What is the carrying cost associated with the payment of duty?