paml wrote:
I don't quite understand this part of the question and how to set it up properly: "7% import tax on the portion of the total value of the item in excess of $1000". I'm not clear on what the italicized portion means.

In other words, the first $1000 is "free" (there's no tax).
So, for example, if the TOTAL value is $800, then there's no tax charged.
Likewise, if the TOTAL value is $1000, then there's no tax charged.

However, if the TOTAL value were $1100, then Leo would pay 7% on $100 (since $1100 EXCEEDS $1000 by $100)
If the TOTAL value were $1600, then Leo would pay 7% on $600 (since $1600 EXCEEDS $1000 by $600)

Cheers,
Brent

Hi All,

We're told that when Leo imported a certain item, he paid a 7% import tax on the portion of the total value of the item in EXCESS of $1000 and the amount of the import tax that Leo paid was $87.50. We're asked for the total value of the item. This question has a great 'round number shortcut' that you can take advantage of to avoid any heavy calculations.

With a 7% import tax, every $1000 increase in price ABOVE the initial value of the item will lead to a $70 increase in tax (since 7% of $1,000 = $70. Thus....

A $1,000 item = $0 in tax
A $2,000 item = $70 in tax
A $3,000 item = $140 in tax
Etc.

The total tax on the item is $87.50 - which is just a bit higher than $70, so the total price of the item will be a bit higher than $2,000. There's really only one answer that 'fits' here, but if you narrowed it down to Answers C and D and felt that you need to do a bit more work, then you can go in $500 increments (since 7% of $500 = HALF of $70 ---> $35)....

A $1,500 item = $35 in tax
A $2,000 item = $70 in tax
A $2,500 item = $105 in tax

$87.50 is closer to $70 than it is to $105, so the total price of the item would have to be closer the $2,000 than $2,500.

Final Answer: C

GMAT assassins aren't born, they're made,
Rich

paml wrote: When Leo imported a certain item, he paid a 7% import tax on the portion of the total value of the item in excess of $1000. If the amount of the import tax that Leo paid was $87.50 what was the total value of the item?
A $1600
B $1850
C $2250
D $2400
E $2750

We know that when Leo imports a certain item, he pays a 7% import tax on the portion of the total value in excess of $1,000. "In excess of" is the key phrase here, and it means that Leo does not pay any tax on his items until he hits $1,000. The best way to complete this problem is to set up an equation.

First, let's say that T = total value of the item; therefore, (T - 1000) is the portion that is taxable.

Next, we can create an equation to determine T:

87.5 = 0.07(T - 1,000)

87.5 = 0.07T - 70

157.5 = 0.07T

157.5/0.07 = T

15,750/7 = T

T = 2,250

Answer: C