Question

A manufacturer sells an article to a wholesaler for ₹ 5000 . The wholesaler sells it to a trader at a profit of ₹ 1000 and trader , in turn sells it to a customer at a profit of ₹ 1500. If the rate of VAT is 8 % find :

i) the amount of VAT received by the State Goverment on the sale of this article

ii) the amount that customer pays for the article

• A. i) ₹ 600 , ii) ₹ 7500
• B. i) ₹ 500 , ii) ₹ 5500
• C. i) ₹ 800 , ii) ₹ 6500
• D. i) ₹ 1000 , ii) ₹ 8500

Answer 1

The correct option is A

i) ₹ 600 , ii) ₹ 7500

i) Tax collected by the Government
Amount of Tax collected by the manufacturer A = 8 % of 5000
= $\frac{8}{100}\times$ 5000
= ₹ 400

Trader B makes a profit of ₹ 1000; the value added by the trader B = ₹ 1000
Amount of VAT to be paid by trader B = $\frac{8}{100}\times$ 1000
= ₹ 80

Trader C makes a profit of ₹ 1500; the value added by the Trader C = ₹ 1500
Amount of VAT to be paid by trader C = $\frac{8}{100}\times$ 1500
= ₹ 120

$\therefore$ The amount of tax ( under VAT) received by the Government
= ₹(400 + 80 + 120)
= ₹ 600

ii) the amount paid by the customer

For the trader ; the total sale price =5000 + 1000 + 1500
= ₹ 7500

Tax charged = 8 % of 7500
= $\frac{8}{100}\times$ 7500
= ₹ 600

The amount paid by the customer
= 7500 + 600
= ₹ 8100