1 answer

A supply chain is adding value to a product. (Think of cotton starting in a field, being turned i...

Question:

A supply chain is adding value to a product. (Think of cotton starting in a field, being turned into cotton thread, then a shirt, then a designer shirt.) At the point of extraction the value added to the product is $10. At the point of manufacture the value added to the product is an additional $12. At the point of the wholesaler the value added is an additional $14. Then finally at the point of retail sale the value added is an additional $16.
(Part A) In the European Union this product would be subject to a 15% value added tax. How much tax will be due at each stage of the products development?
(Part B) In Chicago, IL this product would be subject to a 6.25% Illinois state sales tax and a 10.25% Chicago city sales tax. How much tax will be due at each stage of the products development?

Answers

Part (A)

Action Value added VAT(@15%)
Extraction $10 Value added*15% $1.50
Manufacturing $21 $3.15
wholesaler $14 $2.10
Retail $16 $2.40

Part (b) Total Tax = 6.25% +10.25% = 16.50%

Action Value added Price TAX(@16.50%)
Extraction $10 $10 Price *16.5% $1.65
Manufacturing $21 $31 $5.12
wholesaler $14 $45 $7.43
Retail $16 $61 $10.07
.

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