A company is determining where it should manufacture a product weighing 1 lb.

To find the total cost of supplying the items to the Chicago market from each location, we need to multiply the demand (100,000 items) by the sum of the material and labor cost per item, the shipment cost to market per item, and the import duty per item. The shipment cost to market per item can be obtained by dividing the shipment cost to market per 100 lb. by 100, since each item weighs 1 lb. The raw material shipment from source cost is irrelevant for this question, since it does not affect the total cost to supply the items to the Chicago market. Using this formula, we can calculate the total cost for each location as follows:

Houston: 100,000 x ($7 + $5/100 + $0) = $712,000

Taiwan: 100,000 x ($6 + $6/100 + $2) = $814,000

Chicago: 100,000 x ($10 + $0/100 + $0) = $1,000,000

Seattle: 100,000 x ($12 + $5/100 + $0) = $1,205,000

The location with the lowest total cost is Chicago, with $1,000,000. Therefore, the items should be produced in Chicago to minimize the total cost to supply the items to the Chicago market.