Relevant Costs, Foreign Trade Zones

Pacific Rim, Inc., is considering opening a new warehouse to serve the northwest region. Darnell Florian, controller for Pacific Rim, has been reading about the advantages of FTZs. He wonders if locating in one would be of benefit to his company, which imports its merchandise from Asia. 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:

If required, round your answers to the nearest dollar.

1. If Pacific Rim locates the warehouse in an FTZ, how much will be saved in tariffs? $fill in the blank 1

2. Suppose that, on average, the merchandise stays in a Pacific Rim warehouse for nine months before shipment to retailers. Carrying cost for Pacific Rim is 6 percent per year. If Pacific Rim locates the warehouse in an FTZ, how much will be saved in carrying costs? $fill in the blank 2

What will the total tariff-related savings be? $fill in the blank 3

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, Pacific Rim has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Pacific Rim locates the warehouse in an FTZ, how much will be saved in carrying costs? $fill in the blank 4

What will the total tariff-related savings be? $fill in the blank 5