Value Added

Meaning:-To explain the concept of value added let us take the example i.e The mill purchases wheat worth Rs. 10,000. This purchase is the intermediate cost to the mill. The sale of flour worth Rs. 12,000 is the output of the mill.

Suppose wheat is the only intermediate cost to the mill.Now, out of the total output of the mill of Rs. 12,000 the contribution of the mill is only worth Rs. 2,000. The remaining Rs. 10,000 is the contribution of the farmers. The contribution of Rs. 2,000 by the mill is called the 'value added' by the mill. It is estimated after deducting intermediate cost from the toatl value output. Thus :-Value added = Value of output - intermediate cost= Rs. 12,000 - Rs. 10,000 = Rs. 2,000The above measure of value added is termed as Gross Value Added at Market Price (GVAmp).To know what 'gross' and 'market price' mean in GVAmp, you must know the difference between (a) gross and net measures and (b) market price and factor cost measures of value added.For that difference and to know more about this stay tuned and must see later posts on this topic.