International Marketing Corp. has been in business for over forty years and is well respected in the retail community.Their customers have come to expect quality and superior service.The company, therefore, is able to charge slightly higher prices than their competitors and still retain considerable market share.Each of their four hundred stores located throughout Europe and North America has a history of profitability.Merchandise International has suppliers located in Europe, Central America and Asia.

International Marketing Corp. has experienced quality issues with some of the products imported from their suppliers in Asia, having to discard up to 5% of the merchandise received.Due to the length of time required for shipping the Asian products, they are also required to maintain numerous warehouses and large inventories.

International Marketing Corp. issue documentary credits for about 85% of the inventory that they import.The terms of their documentary credits usually involve sight payment.Their purchase order system, which the company has used since it was originally incorporated, is still largely paper based.Manual entry of data from the purchase order system into the electronic databases and communication systems also used by the company sometimes results in transcription errors.

One of the automated systems used by the company is an automated documentary credit system.This system is provided by Merchandise International Ltd.'s international banker.The international bank has other automated functions which could potentially give International Marketing Corp. a more efficient means of engaging in all aspects of international trade.The company, however, utilizes the system only for documentary credits despite efforts of the bank to convince the company to utilize the system's full capability.Increased utilization would allow the bank to charge fees for the enhanced service provided.International Marketing Corp.is reluctant to change their established administrative and communications procedures to comply with the requirements of the more advanced technology.

Merchandise International Ltd., bases their importing decisions primarily on the landed cost of the imports.A new executive in the accounting department is making a case to focus more on the concept of maximizing total delivered profit.

Review the recommendations below and, for each question, select the answer that makes the most sense in the context of Merchandise International Ltd.'s current practices and business environment.

International Marketing Corp. purchases much of its inventory from Asia.The primary reason for this is the savings in costs that company is able to realize due to the low wages accepted by the employees of their Asian suppliers.The new accounting executive suspects that the company might actually increase profitability by purchasing more products from local suppliers in spite of the higher wages demanded by local workers.

Question 1 options:

a.Maintaining inventories does not significantly increase the cost of doing business.International Marketing Corp. therefore has no reason to adjust its policy of maintaining large inventories received from distant suppliers.

b.Maximizing total delivered profit is an economic theory that has strong theoretical support but does not, in fact, provide Chief Financial Officers with greater control over the costs of goods sold and corporate profitability.

c.The concept of maximizing total delivered profit implies that most products should be acquired locally.Generally speaking, the cost of shipping products over long distances with related costs such as insurance and tariffs negates the apparent savings resulting from lower production costs overseas.

d.The company is performing well with its current suppliers and methods of operation.Shifting to a different set of suppliers might jeopardize the company's supply of inventory with little additional profit to be realized.The best strategy would be to continue with existing suppliers.

e.The three main factors to consider in assessing a plan for maximizing total delivered profit are the total landed cost, the required lead time, and the demand/supply uncertainty.An effective maximum total delivered profit process involves monitoring and responding to global conditions.Product pricing and promotions and the mix of near-source and far-source activity should be adjusted in keeping with shifts in global conditions and similar actions can be taken to mitigate demand or supply surprises.