There are three production stages required before a bicycle produced by MasiBicicletia S.A.can be sold at retail for €4,500.The VAT rate is 15 percent.Find the total tax liability due. $$\begin{array} { c c c }
\text { Production Stage } & \text { Bellirig Price } & \text { Value Added }& \text { Irncrernertal VAT } \
1& € 1,000 & \
2 & € 2,750 & \
3 & € , 500 &
\end{array}$$

Question

There are three production stages required before a bicycle produced by MasiBicicletia S.A.can be sold at retail for €4,500.The VAT rate is 15 percent.Find the total tax liability due. $$\begin{array} { c c c } 
\text { Production Stage } & \text { Bellirig Price } & \text { Value Added }& \text {  Irncrernertal VAT }  \
1& € 1,000 & \
2 & € 2,750 & \
3 & € , 500 &
\end{array}$$

Quizplus · Accepted Answer

To find the total tax liability due, we need to calculate the value added and incremental VAT for each production stage.

Stage 1:
Value added = Bellirig price = €1,000
Incremental VAT = 0.15 x €1,000 = €150

Stage 2:
Value added = Bellirig price - Production cost from Stage 1 = €2,750 - €1,000 = €1,750
Incremental VAT = 0.15 x €1,750 = €262.50

Stage 3:
Value added = Bellirig price - Production cost from Stage 2 = €4,500 - €2,750 = €1,750
Incremental VAT = 0.15 x €1,750 = €262.50

Total tax liability due = Sum of incremental VAT for all production stages
= €150 + €262.50 + €262.50
= €675

Therefore, the correct choice is B.

There Are Three Production Stages Required Before a Bicycle Produced