'A' is a manufacturer of electric iron. The cost price of each electric iron is Rs 1,600. A sells to 'B' and 'B' sells to 'C' and 'C' sells them to 'D' the retailer. The tax rate is 12.5% and the profit is Rs 150 at each stage of the selling chain. Find (i) the total amount of VAT, and (ii) the amount that the purchaser will have to pay.
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Solution

Each subpart: 2 Marks

$\begin{matrix} M a n u f a c t u r e r & D i s t r i b u t o r & W h o l e s a l e r & R e t a i l e r C . P . & R s 1600 & R s 1750 & R s 1900 & R s 2050 S . P . & R s 1750 & R s 1900 & R s 2050 & R s 2200 V A T = 12.5 % T a x c h a r g e d & R s 218.75 & R s 237.50 & R s 256.25 & R s 275 V A T & R s 218.75 & R S 18.75 & R s 18.75 & R s 18.75 \end{matrix}$
(i) Total VAT = Rs 218.75 + Rs 18.75 + Rs 18.75 +Rs 18.75 = Rs 275
(ii) Amount paid by purchaser = Rs 2,200 + Rs 275 = Rs 2,475

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