Duty-Related Costs of Locating in an FTZ
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?
| Last Year | This Year | |
| Duty | $fill in the blank 1 | $fill in the blank 2 |
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 | $fill in the blank 3 | $fill in the blank 4 |
3. What is the total duty-related cost for Aranda last year and for this year after relocating to the FTZ?
| Last Year | This Year | |
| Total duty-related cost | $fill in the blank 5 | $fill in the blank 6 |
4. What is the total savings on duty and carrying cost attributable to locating in an FTZ?
$fill in the blank 7
Aranda Company, an import-export business, recently relocated to a foreign trade zone (FTZ) in a southwestern city. This strategic move has implications for their duty-related costs, particularly in comparison to their previous location. In this analysis, we will delve into the duty-related costs paid by Aranda both before and after relocating to the FTZ and explore the associated carrying costs. Additionally, we will calculate the total duty-related cost and savings that the company experiences after the relocation.
Last Year: Before relocating to the FTZ, Aranda Company incurred duty costs based on their imports. Given that the company imported $760,000 worth of fabric from overseas for resale, and the duty rate is 15 percent of the cost, the duty paid last year would be:
Duty (Last Year) = $760,000 * 15% = $114,000.
This Year: After relocating to the FTZ, the duty costs have changed. However, to calculate this year’s duty costs, we need additional information on the changes in the import process, such as potential FTZ benefits or exemptions.
Last Year: Carrying costs are associated with holding inventory. Assuming Aranda holds the fabric for about four months, and they face a 6 percent carrying cost, the carrying cost of duty last year would be:
Carrying Cost (Last Year) = $114,000 * (6% / 12) * 4 months = $2,280.
This Year: The carrying cost for this year depends on the changes in the import process due to relocating to the FTZ. It may be influenced by factors like faster processing or reduced inventory holding.
To calculate the total duty-related cost, we need information on the duty and carrying cost for this year, which is currently unknown. We can determine this once we have the necessary data.
The total savings on duty and carrying costs attributable to relocating to an FTZ can be calculated as the difference between the total costs before and after the relocation:
Total Savings = (Duty Last Year + Carrying Cost Last Year) – (Duty This Year + Carrying Cost This Year).
However, without the required information on duty and carrying costs for this year, we cannot calculate the precise total savings.
Relocating to a foreign trade zone can have a significant impact on a company’s duty-related costs. In the case of Aranda Company, the duty costs for last year before the relocation amounted to $114,000, and the carrying cost was $2,280. However, we lack data on this year’s duty costs and carrying costs, making it impossible to calculate the total duty-related cost and the total savings resulting from the move to the FTZ. To optimize these benefits, Aranda should leverage the various advantages offered by FTZs, such as reduced customs duties, faster processing times, and potential exemptions, to minimize their overall duty-related expenses and enhance their competitive advantage.
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