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Hat Trick

Hat Trick. An International transaction gone sour. Chapter 6 -- International Trade. Top Hats, Inc. How our story begins… Top Hats buys 300,000 hats a year at a cost of $10.00 per hat from a U.S. factory. Total Cost $3 million

shannon-adkins
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Hat Trick

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  1. Hat Trick An International transaction gone sour. Chapter 6 -- International Trade

  2. Top Hats, Inc. • How our story begins… • Top Hats buys 300,000 hats a year at a cost of $10.00 per hat from a U.S. factory. Total Cost $3 million • Top Hats sells at $20.00 per hat to U.S. consumers. Total gross revenue of $6 million.

  3. End of the year totals: • When selling at $20.00 per hat (the maximum price to stay competitive with other U.S. retailers), your profit of 6 million is allocated as follows: • Revenues after paying supplier = $3,000,000.00 • Revenues after overhead (advertisement, labor, insurance, transportation, packaging, etc…) at the lowest operating cost = $1,000,000.00

  4. Why not go global with business---more money! Life is Good --- • You are the owner of Top Hats, Inc. and all is well as you make the 1 million a year. Then an idea strikes you………….

  5. Hmmmm……... • You note that competing hat sellers are getting their hats from Indonesia. In fact, an Indonesian state owned factory is actively soliciting American buyers for their manufactured hats and is considering one of your competitors to exclusively sell their product to….if you act fast, they will “exclusively” sell their whole output to your company.

  6. As a wise business move-- • You learn that they can produce hats at a fraction of the cost since they use child labor...

  7. An ethical dilemma----do you go with them? Hmmmm…. Everyone else is doing it--look at Cathy Lee..Regis doesn’t mind. They can make hats at $5 each, making my profit an additional 1.5 million! Lost American Jobs…..

  8. Should I do it? The DRAMA OF IT ALL! Show me the money!

  9. The Deal is Struck! • 300,000 hats from the Indonesian company at $5.00 per hat = 1.5 million. • The contract is skimpy on details since both parties trust each other but the agreement calls for payment in Chinese currency which is 1 to 1 trading with the USD, FOB and shipment in 2 lots. Total payment due when 1st lot received

  10. Happy Days! • Total Cost for 300,000 hats is 1.5 million • Total Tariffs on Hats (you classify it as “head gear”) @ $1 per hat = $300,000.00. • Total Overall profit when all is said and done……. $2.2 million (or so)!

  11. Wait, there is a small problem... • You receive notice that the 1st lot is loaded on ships and on their way to the U.S. and full payment is due for the entire order. You now learn that the currency exchange is 1.15 USD for every 1 Chinese Unit! Quick---I’ll call my accounting department and find out what this means…..

  12. Meanwhile back at accounting….detailed “state of the art” calculations are being done. $225,000.00 additional costs for hats making the total now $1,775,000.00 …. Bottom line profit for you was $2.2 million --now is $1,900,000.00

  13. Time to pick up the goods at the port! • Ready to pay the $150,000.00 tariff (1/2 of the total of $300,000.00) you are called to the customs office…..there seems to be a slight problem!

  14. Customs Speaks…... • Your goods are classified as “head apparel” which has a tariff of $2.00 per item not “head gear” which has a tariff of $1.00 per item. I want to speak to a supervisor… this can’t be right.

  15. Custom’s Supervisor Meeting Quick, I must call accounting to see what this all means. Nope, I’m a civil servant and I don’t have time for you…. Pay the tariff…….by the way, we are the government...we are always right Can you help me?

  16. Meanwhile back at accounting….detailed “state of the art” calculations are being done. $300,000.00 additional costs for tariffs--- the total tariff now $600,000 …. Bottom line profit for you was $1,900,000.00 --now is $1,600,000.00

  17. Now back to the port to pick up the goods! • Ready to pay the new tariff amount b/c of the change of classification. You are called to the customs office…..there seems to be another slight problem!

  18. Customs Speaks…... • Your goods are being imported from a country in which there is a CVD of $500,000.00 due to that country’s “dumping” activities within the U.S. Therefore, you must pay an additional $500,000.00 tariff. I want to speak to a supervisor… this can’t be right. CVD?? Or BVD’s? I don’t even wear underwear!

  19. Custom’s Supervisor Meeting Quick, I must call accounting to see what this all means. Nope, no mistake, please remember we are the government…… we are always right…pay the tariff Can you help me?

  20. Meanwhile back at accounting….detailed “state of the art” calculations are being done. $500,000.00 additional tariffs making the total Bottom line profit for you was $1.600,000.00 --now is $1,100,000.00

  21. Now back to the port to pick up the goods! • Ready to pay the new tariff amount b/c of the change of classification & CVD for “Dumping”. You are called to the customs office…..there seems to be another slight problem!

  22. Customs Speaks…... • Your goods are being imported from a country in which there is a CVD of $900,000.00 due to that country’s “unfair subsidies” activities which is unfairly prejudicing U.S. manufacturers. Therefore, you must pay an additional $900,000.00 tariff. I want to speak to a supervisor… this can’t be right.

  23. Custom’s Supervisor Meeting Quick, I must call accounting to see what this all means. Do you have an appointment? . We’re right--your wrong..that’s just the way it is…..pay the tariff… have a nice day Nope

  24. Meanwhile back at accounting….detailed “state of the art” calculations are being done. $900,000.00 additional tariffs making the total Bottom line profit for you was $1.100,000.00 --now is $200,000.00

  25. I’ve got my first shipment and the second lot has just leaving port from Indonesia. Nothing can stop me.

  26. The phone rings….. • You have just been informed that the second shipment due to be delivered is at the bottom of the sea (the ship zigged instead of zagged). The Indonesian official says this is your problem. You disagree and must sue…but may have to hire legal counsel overseas!

  27. Hello Accounting…..

  28. Meanwhile back at accounting….detailed “state of the art” calculations are being done. $100,000.00 legal fees and $50,000.00 in costs to litigate overseas... Bottom line profit for you was $200,000.00 --now is $50,000.00

  29. Well, it seems its time to release my new invention---the “computer inside the hat” invention. I will sell millions….I will ship the computers to the Indonesian factory to be built right into the hat itself.

  30. This is the police, your under arrest for violation of the Export Administration Act. You attempted to export restricted technology to another country. Put your hands on top of your head……. I can’t touch the top of my head with all these hats

  31. Hello Accounting… …… Hello Accounting…. … Is anyone there?

  32. Meanwhile back at accounting….detailed “state of the art” calculations are being done. This is accounting…..we have good news & bad news….We cut back on company expenses to afford your legal bills…..the bad news is ... we cut out our department….. We’re out of here

  33. The End

  34. Clause of the Week Language Clause (not in collection—please note!)

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