Assume that a product has the following three stages of production: If the value-added tax (VAT)rate is 20%,what would be the VAT over all stages of production?

Question

Assume that a product has the following three stages of production:  If the value-added tax (VAT)rate is 20%,what would be the VAT over all stages of production?

Quizplus · Accepted Answer

Since the VAT rate is 20%, the VAT over each stage of production would be 20% of the value added in that stage. Therefore, the total VAT over all three stages would be:
VAT = 20% of (€500 + €1000 + €2000)
VAT = 20% of €3500
VAT = €700
Therefore, the best choice is B) €600, since it is the closest option to the actual amount of VAT.

Assume That a Product Has the Following Three Stages of Production