Deitz J.E., Southam J.L. Contemporary Business Mathematics for Colleges

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Grandfather Clock Shop

Comparative Income Statement

or the Years Ended December 31, 2008 and 2007

2008 2007 Difference

Amount Percent Amount Percent Amount Percent

NET SALES $205,000 100.0% $120,000 100.0%

Cost of goods sold:

Merchandise inventory, January 1 $ 31,000 15.1% $ 27,500 22.9%

Purchases 154,000 75.1% 84,500 70.4%

Merchandise available for sale $185,000 90.2% $112,000 93.3%

Merchandise inventory,

December 31 46,000 22.4% 31,000 25.8%

Cost of goods sold $139,000 67.8% $ 81,000 67.5%

Gross profit on sales $ 66,000 32.2% $ 39,000 32.5%

Expenses:

Selling $ 31,000 15.1% $ 21,500 17.9%

Other 13,000 6.3% 7,250 6.0%

Total expenses $ 44,000 21.5% $ 28,750 24.0%

NET INCOME $ 22,000 10.7% $ 10,250 8.5%

Any differences of 0.1% from individual items are due to rounding.

Score for C (26)

114.6%$11,750

53.0%$15,250

79.3%5,750

44.2%$ 9,500

69.2%$27,000

71.6%$58,000

48.4%15,000

65.2%$73,000

82.2%69,500

12.7%$ 3,500

70.8%$85,000

404 Part 5 Business Applications

Assignment 19.3 Continued

International

Business

Chapter 20 International Business 405

Learning Objectives

By studying this chapter and completing all assignments, you will be able to:

Compute currency exchange rates.

Compute the effects of exchange rate changes.

Compute duties on imports.

Convert between U.S. weights and measures and metric weights

and measures.

Learning Objective

20.1 In addition to being major

players in the export/import busi-

ness,Americans are among the

world’s most frequent international

travelers.Today,international travel

and communication constitute

major components of international

business and monetary exchange.

In order to conduct international trade, U.S. companies must exchange U.S. dollars for

other currencies and vice versa. Figure 20-1 lists the names of the currency units used in

the major countries, the U.S. dollars per unit, and the number of units per U.S. dollar.

Businesses in the United States import goods made in other countries and export

domestic goods made in the United States. International business transactions amount

to billions of dollars annually and constitute an important part of the economies of

most nations in the world.

International trade between U.S. companies and those in other countries is under the ju-

risdiction of the International Trade Administration (ITA), a branch of the Department of

Commerce. All international trade is subject to a set of ITA rules and regulations known as

the Export Administration Regulations. Any company in the United States planning to sell

goods to companies in other countries must have an ITA export license for the transactions.

406 Part 5 Business Applications

Computing Currency Exchange Rates

Learning Objective

CURRENCY EXCHANGE RATES

Per US Dollar In US Dollars

Argentine Peso 3.15622 0.316835

Australian Dollar 1.10681 0.903497

Brazilian Real 1.7438 0.57346

British Pound 0.507949 1.9687

Canadian Dollar 0.9939 1.00614

Chinese Yuan 7.1845 0.139189

Danish Krone 5.0183 0.199271

Euro 0.673355 1.4851

Hong Kong Dollar 7.7971 0.128253

Hungarian Forint 173.443 0.00576559

Indian Rupee 39.12 0.0255624

Israel New Shekel 3.57988 0.279339

Japanese Yen 106.3 0.009407

Malaysian Ringgit 3.231 0.309502

Mexican Peso 10.812 0.09248

New Zealand Dollar 1.25818 0.794799

Norwegian Kroner 5.4046 0.185028

Russian Ruble 24.502 0.040813

Singapore Dollar 1.4136 0.707414

South African Rand 7.45705 0.134101

South Korean Won 944.5 0.00105876

Sri Lanka Rupee 107.65 0.00928936

Swedish Krona 6.3512 0.157451

Swiss Franc 1.0821 0.924129

Taiwan Dollar 32.03 0.0312207

Thai Baht 31.05 0.0322061

Figure 20-1 Foreign Currency–U.S. Dollar Exchange Rates

Compute currency exchange rates.

Chapter 20 International Business 407

Four other governments call their currency the dollar—Australia, Canada, Hong

Kong, and New Zealand. These dollars are not U.S. dollars; each is a separate currency.

Several currencies share names, such as the franc, mark, peso, pound, and euro.

EXAMPLE A

A person planning a trip to Denmark wants to change $100 U.S. to Danish kroner. How

many kroner will the person get for the $100 U.S.? (Round answer to nearest krone.)

5.0183 3 100 5 502 kroner

EXAMPLE B

A traveler from Argentina is planning a trip to the United States and wants to change

1,000 Argentine pesos to U.S. dollars. How many U.S. dollars will the traveler receive for

the 1,000 pesos? (Round answer to nearest dollar.)

1,000 4 3.15622 5 $317

EXAMPLE C

An American tourist shopping in a Canadian store purchased an item for 100 Canadian

dollars. How much did his purchase cost him in U.S. dollars? (Round answer to nearest

U.S. penny.)

100 Canadian dollars 3 1.00614 U.S. dollars per Canadian dollar 5 $100.61

Using the “Per US Dollar” column from Figure 20-1, compute the number of euros one would

receive for $300 U.S. (Round answer to nearest euro.)

$300 3 0.673355 5 202 euros

Using the “In US Dollars” column from Figure 20-1, compute the number of U.S. dollars one

would receive for 400 Japanese yen. (Round answer to nearest U.S. penny.)

400 3 0.009407 5 $3.76

✔

CONCEPT CHECK 20.1

One hazard of foreign trade is the uncertainty of future exchange rates between curren-

cies. The relationship between the values of the U.S. dollar and a foreign currency can

change between the time a contract is signed and the time payment is received. If a U.S.

exporter agrees to accept foreign currency, a devaluation in the foreign currency could

cause the exporter to lose money on the transaction.

Computing the Effects of Exchange

Rate Changes

Compute the effects of exchange

rate changes.

Learning Objective

408 Part 5 Business Applications

EXAMPLE D

Global Industries, a U.S. company, sold merchandise to Europa, a company in Hungary.

Europa agreed to pay 500,000 Hungarian forint for the goods. On the date of the sale,

the Hungarian forint was valued at 173.443 per U.S. dollar, as noted in Figure 20-1.

Global Industries expected to receive $2,882.79. (500,000 Hungarian forint 4 173.443

per U.S. dollar 5 $2,882.79.)

Between the date the sale was made and the date the goods were shipped and paid for

by Europa, the value of the forint changed to 177.022 per U.S. dollar. How much did

Global Industries lose by accepting the forint as the medium of payment?

Value of merchandise at time of sale: 500,000 Hungarian forint 4 173.443 per U.S. dollar

5 $2,882.79. Value of merchandise at time shipped and paid for: 500,000 Hungarian

forint 4 177.022 5 $2,824.51. Value of 500,000 forint at time of sale $2,882.79 2 value of

500,000 forint at time shipped and paid $2,824.51 5 loss to Global Industries $58.28.

EXAMPLE E

Global Industries investigated a purchase of raw materials from a company in England.

The price of the materials was 150,000 British pounds. At the time, the value of the

British pound was $1.652. Ten months later, when Global actually made the purchase,

the value of the British pound was as shown in Figure 20-1. How many more dollars did

Global have to pay as a result of the change in the value of the British pound?

150,000 3 $1.652 5 $247,800 cost when investigated

150,000 3 $1.9687 5 $295,305 cost when purchase was made

$295,305 2 $247,800 5 $47,505 more dollars at time of purchase

Global Industries contracts to sell a printing press to a company in Denmark. The Danish

company agreed to pay $300,000 U.S. dollars for the press.

On the date the agreement was made, the Danish krone was worth 0.199271 U.S. dollars.

On the date payment was made, the krone had changed to 0.1972 U.S. dollars. How many more

or less Danish kroner did the Danish company pay by stipulating a purchase price of $300,000

U.S. dollars?

$300,000 4 0.199271 5 1,505,487.50 kroner at time of agreement

$300,000 4 0.1972 5 1,521,298.17 kroner at time of payment

1,521,298.17 2 1,505,487.50 5 15,810.67 more kroner at time of payment

If the Danish company had agreed to pay 1,505,487.50 kroner instead of $300,000 for the

purchase, how many U.S. dollars would it have saved between the time of agreement and the

time of payment?

1,505,487.50 kroner to be paid 3 0.1972 value of krone at payment 5 $296,882.14

$300,000 value of kroner at time of agreement 2 $296,882.14 5 $3,117.86 saved

✔

CONCEPT CHECK 20.2

All items imported into the United States must go through the U.S. Customs Agency.

Many imported items have a duty (charge or tax) imposed by the Customs Agency to

protect U.S. manufacturers against foreign competition in domestic markets. Duties vary

widely from item to item. A duty may be a set amount—such as $0.50 per item—or an

ad valorem duty, which is a percent of the value of the item.

Chapter 20 International Business 409

Computing Duties on Imports

Compute duties on imports.

Learning Objective

Foreign trade zones are domestic sites in the United States considered to be outside

U.S. Customs territory. These foreign trade zones are used for import and export activi-

ties. No duty or federal excise taxes are charged on foreign goods moved into the zone

until the goods or products made from them are moved into U.S. Customs territory. No

20.2 U.S.travelers returning from

foreign countries must go through

Customs and report any purchases

made abroad in excess of a certain

total amount.Any purchases beyond

this limit are subject to immediate

payment of the appropriate duty.This

duty protects the business interests of

American companies that have to pay

duty when importing the same items

for resale.

EXAMPLE F

Assume that a wristwatch in a leather case with a metal band has four duty rates

imposed: $0.40 per wristwatch 1 6% of the value of the case 1 14% of the value of the

metal band 1 5% of the value of the battery. Anderson Jewelry Company imported

four dozen wristwatches. The value of the case was $16; the metal band, $10; and the

battery, $6. How much duty did the Anderson Jewelry Company pay for the four dozen

wristwatches? (Round answer to nearest cent.)

Duty per wristwatch: $0.40

Ad valorem duty on case: $16 3 0.06 5 0.96

Ad valorem duty on metal band: $10 3 0.14 5 1.40

Ad valorem duty on battery: $6 3 0.05 51 0.30

Total duty per watch $3.06

$3.06 per watch 3 48 watches 5 $146.88 total duty paid

20.3 The flexibility of duties imposed

on like items from different countries

is a means of helping developing

countries participate in international

trade and to punish countries for

imposing high tariffs on U.S.goods.

EXAMPLE G

A computer printer costs $150 whether purchased from Country A or Country B.

However, it has an ad valorem duty rate of 3.5% if purchased from Country A and an

ad valorem duty rate of 28% if purchased from Country B. How much more would it

cost a company to purchase the printer from Country B than from Country A?

Country A: $150 3 0.035 5 $5.25

$150 1 $5.25 5 $155.25 total cost

Country B: $150 3 0.28 5 $42

$150 1 $42 5 $192 total cost

$192

Country B 2 $155.25 Country A 5 $36.75 more

410 Part 5 Business Applications

EXAMPLE H

A U.S. company located in a foreign trade zone imported $500,000 worth of goods. The

duty rate on the goods is 5%. If 30% of the goods were moved into U.S. Customs terri-

tory for sale and 70% were exported for sale, how much money did the company save by

being located in a foreign trade zone?

$500,000 3 70% for export  $350,000 in goods

$350,000 3 5% duty 5 $17,500 saved

a. Downtown Toy Store ordered from a foreign country 400 dolls on which an ad valorem duty of 4.5% is charged.

Payment is to be made in U.S. dollars. The price of each doll is $23. What is the total cost to Downtown Toy Store?

400 3 $23 5 $9,200 cost before duty

$9,200 3 0.045 duty 5 $414

$9,200 1 $414 5 $9,614 total cost to buyer

b. A company located in a foreign trade zone purchased $1 million worth of electronic equipment having an ad

valorem duty of 4.1%. Forty percent of the products were moved into U.S. Customs territory for sale, and 60%

were repackaged and exported. How many dollars did the company save by being located in a foreign trade zone?

$1,000,000 3 60% 5 $600,000

$600,000 3 4.1% 5 $24,600 saved

✔

CONCEPT CHECK 20.3

Some businesses, especially in the area of import–export activities, must convert

U.S. customary units of weights and measures to the metric system of weights and

measures used in most other countries. Figure 20-2 shows the conversion values for

the U.S./metric units used most frequently in business.

Converting Between U.S. Weights and Measures

and Metric Weights and Measures

Learning Objective

Convert between U.S. weights and

measures and metric weights and

measures.

duty is charged on imports that later are exported for sale, because they never entered

U.S. Customs territory. Recently, there were more than 150 foreign trade zones in port

communities in the United States. Operations in them include storage, repacking, in-

spection, exhibition, assembly, and manufacturing.

Chapter 20 International Business 411

20.4 At one time there was a

worldwide campaign to convert all

nations to the metric system.This

movement has now subsided, but

most European and Asian countries

have adopted the metric system.

When business is conducted in those

countries,the metric system is the

system of choice.

EXAMPLE I

Convert the following U.S. measures to metric measures.

a. Convert 30 inches to meters. b. Convert 15 feet to meters.

30 in. 3 0.0254 5 0.7620 m 15 ft 3 0.305 5 4.5750 m

c. Convert 10 yards to meters. d. Convert 20 miles to kilometers.

10 yd 3 0.914 5 9.14 m 20 mi 3 1.609 5 32.18 km

e. Convert 15 ounces to grams. f. Convert 20 pounds to grams.

15 oz 3 28.35 5 425.25 g 20 lb 3 454 5 9,080 g

g. Convert 10 pounds to kilograms. h. Convert 20 pints to liters.

10 lb 3 0.454 5 4.54 kg 20 pt 3 0.473 5 9.46 L

i. Convert 40 quarts to liters. j. Convert 20 gallons to liters.

40 qt 3 0.946 5 37.84 L 20 gal 3 3.785 5 75.7 L

Multiply by Multiply by

To Convert Number of To Convert Number of

U.S. to Metric Metric in U.S. MetrictoU.S. U.S.in Metric

Inches Meters 0.0254 Meters Inches 39.37

Feet Meters 0.305 Meters Feet 3.281

Yards Meters 0.914 Meters Yards 1.09

Miles Kilometers 1.609 Kilometers Miles 0.621

Ounces Grams 28.35 Grams Ounces 0.035

Pounds Grams 454 Grams Pounds 0.0022

Pounds Kilograms 0.454 Kilograms Pounds 2.2

Pints Liters 0.473 Liters Pints 2.113

Quarts Liters 0.946 Liters Quarts 1.057

Gallons Liters 3.785 Liters Gallons 0.264

Figure 20-2 U.S./Metric Unit Conversions

EXAMPLE J

Convert the following metric measures to U.S. measures.

a. Convert 20 meters to inches. b. Convert 20 meters to feet.

20 m 3 39.37 5 787.4 in. 20 m 3 3.281 5 65.62 ft

c. Convert 30 meters to yards. d. Convert 15 kilometers to miles.

30 m 3 1.09 5 32.7 yd 15 km 3 0.621 5 9.315 mi

e. Convert 20 grams to ounces. f. Convert 20 grams to pounds.

20 g 3 0.035 5 0.7 oz 20 g 3 0.0022 5 0.044 lb

g. Convert 40 kilograms to pounds. h. Convert 30 liters to pints.

40 kg 3 2.2 5 88 lb 30 L 3 2.113 5 63.39 pt

i. Convert 20 liters to quarts. j. Convert 20 liters to gallons.

20 L 3 1.057 5 21.14 qt 20 L 3 0.264 5 5.28 gal

412 Part 5 Business Applications

a. Convert 28 inches to meters. b. Convert 17 feet to meters.

28 in. 3 0.0254 5 0.7112 m 17 ft 3 0.305 5 5.185 m

c. Convert 3 meters to inches. d. Convert 18 meters to feet.

3 m 3 39.37 5 118.11 in. 18 m 3 3.281 5 59.058 ft

e. Convert 3 ounces to grams. f. Convert 7 pounds to grams.

3 oz 3 28.35 5 85.05 g 7 lb 3 454 5 3,178 g

g. Convert 36 grams to pounds. h. Convert 18 kilograms to pounds.

36 g 3 0.0022 5 0.0792 lb 18 kg 3 2.2 5 39.6 lb

i. Convert 8 pints to liters. j. Convert 2 quarts to liters.

8 pt 3 0.473 5 3.784 L 2 qt 3 0.946 5 1.892 L

COMPLETE ASSIGNMENT 20.2.

✔

Using Figure 20-2, make the following conversions:

CONCEPT CHECK 20.4

ad valorem duty

duty

export

Export Administration Regulations

foreign trade zones

import

metric system

Chapter Terms for Review

Notes

Chapter 20 International Business 413