Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Company W manufactured 6.5 million boards at a $3.0 material cost per unit. Company W’s labor and overhead added $.60 to the cost per unit. Company W sold the boards to various customers for $4.5 per unit for a net profit of $.90 per unit. How much VAT does Company W owe? (Enter your answer in dollars not in millions of dollars.)
VAT is calculated on the value added i.e over and above the manufactured price.
Total VAT owed = (Sale price – Purchase price)*VAT %
= ($4.5 – $3- $0.60) * 15%
= $0.135 per board.
Total VAT owed= 6500000 * $0.135 = $877500.