Question

A wholesaler buys a TV from the manufacturer for Rs. 25,000. He marks the price of TV 20% above his cost price and sells it to a retailer at 10% discount on the marked price. If the rate of VAT is 8%, find the:
1. Marked price
2. Retailer’s cost price inclusive of tax.
3. VAT paid by the wholesaler

Answer 1

Hint: Here we will calculate the marked price, retailer’s cost price inclusive of tax and VAT paid by the wholesaler using the concepts of profit and loss.

Complete step-by-step answer:

1. Cost price for wholesaler=RS. 25,000
Market price=cost price + 20% of cost price
\[\;{\text{ = 25,000 + }}\left( {\dfrac{{20}}{{100}}} \right)25000 = 30000\]
Therefore, Market price is Rs.30, 000.

2. Cost price for retailer=Market price-discount
Discount=10% on market price$ = \dfrac{{10}}{{100}} \times 30000 = 3000$
Cost price for retailer=$30,000 - 3000 = 27,000$
VAT is 8%
Therefore cost price inclusive of tax$ = 27000 + \left( {\dfrac{8}{{100}}} \right)27000 = 29,160$

3. Cost price for wholesaler=Rs.25,000
Sale price for wholesaler=Rs.27, 000
Profit for wholesaler=Rs.27, 000-Rs.25, 000=Rs.2, 000
VAT paid by wholesaler=8% on profit
${\text{ = (}}\dfrac{8}{{100}})2000 = 160$

Note: Buyer paid the VAT on the cost price of the product, and the wholesaler paid the VAT on the profit which he earned.