Question

Digitone_Co is exploring to use air freight to transport lasers from China to Bulgaria. How much more or less they will have to pay if they shift from ocean to air transportation?

Assume the below numbers for this part (Assume no additional cost other than the ones mentioned below):

1. The total annual demand for headsets is 100000. The per unit cost is € 400.
2. The weight of each unit of the laser is 0.4 Kg.
3. Inventory holding cost is 11% per year.
4. Air rate is € 5/kg and it takes 4 days to transport the headsets from China to Bulgaria via air.
5. Ocean rate is € 0.3/kg and it takes 21 days to transport the headsets from China to Bulgaria via ocean.
6. There are 365 days in a year.

1. Enter the difference between the Cost of Ocean Transportation and the Cost of Air Transportation (Ocean Cost - Air Cost)?

HomeShop has a branch/local office in Japan. HomeShop sells 30000 units to customers in Bulgaria and 100000 units to customers in Japan. Profit per unit is € 89 (Ignore all other costs). All profits are repatriated from Japan. The corporate tax rate in Bulgaria is 40% and 32% in Japan.

2. With no Tax relief agreement in Japan, what are the total taxes that HomeShop has to pay in both countries?

3. Now assume that there is a possibility to use foreign tax credit (FTC) in Bulgaria. What will be the total taxes HomeShop has to pay in this scenario in both countries?

Answer 1

Required 1

Particulars	Ocean	Air	Difference
Units	100,000	100,000
Rate	€              400	€             400
Weight (kgs)	0.4	0.4
Total Weight (kgs)	40,000	40,000
Rate per kg	€ 0.3	€                 5
Total freight	€         12,000	€     200,000	€ (188,000)
Number of days to transport	21	4
Inventory holding cost per day	€         12,055	€       12,055
Total inventory holding cost	€       253,151	€       48,219	€   204,932
Total	€       265,151	€     248,219	€     16,932

Thus, Digotone company will have to pay $16932 less if they shift from ocean to air transportation.

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