Question

A manufacturer marks an article at Rs.$5,000$. He sells this article to a wholesaler at a discount to $25\% $on the marked price and the wholesaler sells it to a retailer at a discount to $15\% $on the marked price. If the retailer sells the article without any discount and at each stage the sales-tax is $8\% $, calculate the amount of VAT paid by:
(i)The wholesaler (ii) The retailer

A) (i) Rs. $50$ (ii) Rs. $40$
B) (i) Rs. $40$ (ii) Rs. $60$
C) (i) Rs. $30$ (ii) Rs. $70$
D) (i) Rs. $20$ (ii) Rs. $40$

Answer 1

Hint: Selling price of any article is the difference in the marked price and the discount. Evaluate the selling price for each person. VAT paid by the wholesaler is the difference in the tax paid by the retailer and the tax paid by the wholesaler. VAT paid by the retailer is the difference in tax paid by the customer and the tax paid by the wholesaler.

Complete step by step answer:
The marked price of an article is Rs.$5,000$
Now, the manufacturer sells this article to a wholesaler at a discount to $25\% $on the marked price.
Therefore, sale price = Marked price – discount
Sale price for manufacturer is,
$
   = 5000 - 5000 \times \dfrac{{25\% }}{{100}} \\
   = 5000 - 1250 \\
   = Rs.3750 \\
 $
Tax paid by the wholesaler is $8\% $ of Rs.$3750$
That is,
$
   = 3750 \times \dfrac{8}{{100}} \\
   = Rs.300 \\
 $
Now, the wholesaler sells this article to a retailer at a discount to $15\% $on the marked price.
Therefore, sale price = Marked price – discount
Sale price for the wholesaler is,
$
   = 5000 - 5000 \times \dfrac{{15\% }}{{100}} \\
   = 5000 - 750 \\
   = Rs.4250 \\
 $
Tax paid by the retailer is $8\% $ of Rs.$4250$
That is,
$
   = 4250 \times \dfrac{8}{{100}} \\
   = Rs.340 \\
 $
Retailer sells the article without any discount therefore, sale price for retailer is $Rs.5000$
Tax paid by the customer is $8\% $ of Rs.$5000$
That is,
$
   = 5000 \times \dfrac{8}{{100}} \\
   = Rs.400 \\
 $
Now, we evaluate VAT.
VAT paid by the wholesaler is the difference in the tax paid by the retailer and the tax paid by the wholesaler.
Therefore, VAT paid by the wholesaler is $340 - 300 = Rs.40$
VAT paid by the retailer is the difference in tax paid by the customer and the tax paid by the retailer.
Therefore, VAT paid by the retailer is $400 - 340 = Rs.60$
Hence, option (B) is correct.

Note: We can define VAT (Value added tax) as a consumption tax which is charged on the product whenever value is added at each stage of the supply chain.