ABC International Inc. has two branches – ABC US, and ABC Cayman. ABC International has decided that it will not mark up any of its exports from ABC US to ABC Cayman since there are no taxes on profits in Cayman, but there are in the US (20% of profits). From its suppliers, ABC US bought 20,000 ‘widgets’ at $10.60 USD each. ABC’s cost accountants allocate 10% of the firm’s overheads (rent, insurance, admin., etc.) of $550,000, to this acquisition of widgets.
The shipment to Cayman was by shipping container. Shipping costs were $4500 USD, insurance was $500 USD, and the brokerage fee was $2000 USD. ABC Cayman must pay a 25% duty on the invoice value (exclusive of the shipping, insurance, and broker fees). ABC Cayman uses a mark-up of 70% of total costs to determine its retail price.The exchange rate is $1 USD = $0.80 KYD. using the above info finish the exercise: Changing the pricing system, ABC US marks up the widgets leaving the US for Cayman by 35%, and Cayman applies a mark-up of 35%. From the profit ABC US generates, it must pay 20% in taxes.
a. What does ABC Cayman pay for the shipment? In USD and in KYD?
b. What is the duty in KYD?
c. How much profit does ABC US make on this transaction?
d. What is the retail price charged for each widget? (in USD and KYD)
e. What is the tax (including duty) paid as a percentage of total sales
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