Aranda Company is an import-export company that relocated earlier this year in a foreign trade zone (FTZ) in a southwestern city. The company imports $760,000 of fabric from overseas for resale to clothing companies located in the United
States. Aranda purchases and receives the fabric about four months before it is sold and shipped to customers; customers are billed and pay in two months. Duty is assessed at 15 percent of cost, and Aranda faces a 6 percent carrying cost.
Required:
1. What is the amount of duty paid by Aranda last year (before locating in the FTZ) and for this year after relocating to the FTZ?
Duty
Last Year
$114,000
This Year
$114,000
2. What is the amount of carrying cost associated with the duty paid by Aranda last year and for this year after relocating to the FTZ?
Last Year
This Year
Carrying cost of duty
3,420
6,840 X
3. What is the total duty-related cost for Aranda last year and for this year after relocating to the FTZ?
Total duty-related cost
Last Year
117,420
This Year
$ 120,840 X
4. What is the total savings on duty and carrying cost attributable to locating in an FTZ?
$ 120,840 X
5. What if some of the fabric turned out to be defective and had to be disposed of before sale and shipment to customers? Would it be more or less advantageous to be located in an FTZ in this case? Why or why not?
If some of the fabric was defective and could not
✔be sold, duty would not be owed in the FTZ and total duty and duty-related costs would be lower.
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Check My Work
1. purchase amount X duty rate
2. Goods not sold in FTZ are not subject to duty or carrying costs.
3. Calculate total duty-related costs and total duty-related costs in the FTZ.
