Intel produces a moderate performance CDMA chip that competes with Qualcomm at the low end of the telecommunications market. Intel is gearing up to market the chip in Japan where distribution channels are known to be long and complex. For purposes of determining product cost and transfer pricing, Intel uses fully burdened cost-plus pricing. Assume Intel covers all transportation and import / export expenditures to the customers dock (DDP). Table 1 shows selected cost information for the product:

Cost Element: Cost in $ Materials Direct Labor Indirect Overhead (400 %) Depreciation Miscellaneous overhead costs Transportation Costs (Domestic) Transportation Costs (International) Duties Payable (on arrival in Japan costs) $ 0.25 $0.75 $ 1.00 $0.25 $ 0.25 $ 0.25 $0.75 10 % of product mfg.cost w/o transport . . Intel (level O) prices its product to its immediate distribution agent so that it can generate a 50% gross margin. Table 2 shows a range of distribution levels in the Japanese markets with the associated required mark-ups. Table 2: Mark-up % Distribution Channel Level: Level O (Intel) 100% Level 1 30% Level 2 20% Level 3 25% Level 4 15% Level 5 20% Level 6 20% 1. What is the landed (DDP) cost at the level 1 distributor in Japan? 2. How many levels of distribution can this product support given the market price is $25.00 and the various levels need to make the annotated Mark-up percentages in Table 2? Please show your work