Assume that a product has the following three stages of production: $\begin{array}{ccc}
\text { Production Stage } & \text { Selling Price } \
1 & € 600 \
2 & € 1,40 \mathrm{C} \
3 & € 1,70 \mathrm{C}
\end{array}$ If the value-added tax (VAT)rate is 15 percent,what would be the VAT over all stages of production?

Question

Quizplus · Accepted Answer

The VAT is calculated on the value added at each stage, not the total selling price. At stage 1, the value added is €600, so the VAT is €600 * 15% = €90. At stage 2, the value added is €1,400 - €600 = €800, so the VAT is €800 * 15% = €120. At stage 3, the value added is €1,700 - €1,400 = €300, so the VAT is €300 * 15% = €45. The total VAT over all stages is €90 + €120 + €45 = €255.

Assume That a Product Has the Following Three Stages of Production