What is added value?

The idea of ​​added value is used in the areas of accounting, finance and economics. One of the meanings of the concept refers to the economic value that a good gains when it is modified within the production process.

This means that, in one context, added value is the economic value that the production process adds to a good. Suppose a table made of untreated natural pine wood has a selling price of $200. If an antibacterial product is applied to said table and it is varnished, its selling price goes up to $280. The value added by this process, therefore, is $80.

Beyond this simple example, technology and industrial processes are often the tools that add the most value to a product. Therefore, for a country’s economy, the ideal is to have advanced industries capable of transforming raw materials to generate more added value. If a nation only sells raw materials, it will create little value. For accounting purposes, value added is the difference between the cost of production and the market price. An automaker spends 15,000 pesos to produce a vehicle that later sells for 32,000 pesos on the market. The added value for the company is 17,000 pesos per car. Keep in mind that these examples are only theoretical, as there are other factors that affect prices (such as taxes, for example). The Value Added Tax (known by the acronym VAT ) is a tax that is levied on consumption: the buyer pays at the time of purchase of a product. It is an indirect tax, since it is not paid by the buyer to the treasury, but it is the seller who receives the money from the buyer and then must pay it to the State. It is worth mentioning that the concept of added value is also known by the denomination of added value , and the only difference usually refers to regional issues. However, in the latter, it is more common to speak of high added value, characteristic of those activities that can make a product rarer. When talking about high added value in the field of politics or journalism, the objective is to refer to everything that makes the consumer want a certain product more than its alternatives. On the other hand, from the manufacturers’ point of view, high added value reduces production costs.

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An item classified in this group may fill a need that no one else can, or even “create” one or more items that consumers did not know they had. The high added value, in short, is typical of any product that is synonymous with innovation, especially when new technologies are used in its production and when it includes them to provide unusual characteristics . It is not difficult to recognize the high added value of a product, as it is usually perceived in its design, in the way it is advertised, in the options it offers its users and even in its price, which is usually very competitive. To obtain a higher relative profit than the competition, a company has several options, such as the following: * offer exactly the same thing at a lower price, so that the permanence of other companies in the market is compromised, thanks to the combination of a great sales volume and a lower-than-normal cost of production; * Present a new need to consumers, sometimes eliminating another one as well.

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