Assume that a product has the following three stages of production: If the value-added tax (VAT) rate is 25%, 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 25%, what would be the VAT over all stages of production?

Quizplus · Accepted Answer

To calculate the VAT over all stages of production, we need to calculate the value-added at each stage first. Then we can calculate the VAT for each stage by multiplying the value-added by the VAT rate. Finally, we can add up the VAT for all three stages.

Let's assume that the input cost for the first stage is €100. Then the value-added for this stage would be €200 (assuming a 100% mark-up). So the VAT for this stage would be €50 (25% of €200).

For the second stage, let's assume that the input cost is €200. Then the value-added for this stage would be €400. So the VAT for this stage would be €100.

For the third stage, let's assume that the input cost is €400. Then the value-added for this stage would be €800. So the VAT for this stage would be €200.

Now we can add up the VAT for all three stages:

VAT = €50 + €100 + €200
VAT = €350

Therefore, the best choice is A) €187.50.

Assume That a Product Has the Following Three Stages of Production