Grassley, Inc., is considering opening a new warehouse to serve the Southwest region. Dante Moore, controller for Grassley, 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.). Dante estimates that the new warehouse will store imported merchandise costing about $23.7 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling)

is about 7 percent of the total. The average tariff rate on these imports ignoe percent:

Required:

1. IfGrassley 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 Grassley warehouse for nine months before shipment to retailers. Carrying cost for Grassley is 8 percent per year.

If Grassley 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 15 percent, and a new carrying cost of 10 percent per year. To combat these increases, Grassley has instituted a total quality program emphasizing reducing shrinkage.

The new shrinkage rate is 5 percent. Given this new information, if Grassley 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.)

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