There are three production stages required before a bicycle produced by Masi Bicicletia S.A. can be sold at retail for €4,500. The VAT rate is 15%. Find the total tax liability due.

Question

Quizplus · Accepted Answer

To find the total tax liability, we need to find the amount of VAT payable at each production stage and then add them together. 
First, we need to find the cost of the bicycle before VAT. If the retail price is €4,500 with a 15% VAT rate, then the cost before VAT is:
4,500 / (1 + 0.15) = €3,913.04
Next, we need to calculate the VAT payable at each production stage:
Stage 1: €3,913.04 x 0.15 = €586.96
Stage 2: €586.96 x 0.15 = €88.04
Stage 3: €88.04 x 0.15 = €13.21
Finally, we add up the VAT payable at each stage:
€586.96 + €88.04 + €13.21 = €688.21
Therefore, the total tax liability due is €688.21, which is closest to answer choice B (€675).

There Are Three Production Stages Required Before a Bicycle Produced