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

To calculate the VAT over all three stages of production, we need to first calculate the VAT over each stage separately. 
For the first stage, the VAT would be 20% of €500 which is €100. 
For the second stage, the VAT would be 20% of (€500 + €100) which is €120. 
For the third stage, the VAT would be 20% of (€700 + €120) which is €144. 
Therefore, the total VAT over all stages of production would be €100 + €120 + €144 = €364. 
Therefore, the best choice is C, which is €150.

Assume That a Product Has the Following Three Stages of Production