Liston, Inc., owns a factory located close to, but not inside, a foreign trade zone. The plant
Question:
Liston, 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, Liston imports about $16,400,000 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, Liston has a carrying cost of 8% per year associated with the duty payment. On average, the chemicals are held in inventory for 9 months.
Suppose that Liston 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?
Step by Step Answer:
Managerial Accounting The Cornerstone Of Business Decision Making
ISBN: 9780357715345
8th Edition
Authors: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger