VALUE ADDED

Describe how value-added is calculated?

Describe how value-added is calculated?

Value Added

Value added is the difference between the sales price and production costs. Labor can be a significant contributor to the cost of goods sold that will reduce the value added in production. An interesting definition of added value or value added is the enhancement of a product or service before it is offered to its customers. Crane (2002) posits that value added “refers directly to product and service features that increase the worth or benefit to customers” (p. 13). The author also highlights that “value is an estimate of future benefits” (Crane, 2000, p. 1). While the later definitions are focused from the perspective of the customer, in terms of a management function, value added would be the enhancement of the management function. This enhancement would be based on the addition of several other managerial actions since the principal management function would go above and beyond its main purpose or scope in an organization.

In economic terms, value added is the value that is acquired by additional goods and services to be transformed during the production process. In other words, the economic value is the value that a process of production ads to the already embodied in the raw materials used in production (Andrejko, 2004).

The added value can be estimated for a company, a sector of the economy or a region or country, or even the international economy. The technique of Input-Output (MIP) determines the annual flow of goods and services obtained in terms of inputs or resources used from other production centers. From the standpoint of macroeconomic value added is the sum total of wages, salaries or fees, interest, rents, profits of the business and taxes collected by the State, in a given period (Allman, 2010).

Calculation

The added value can be calculated in two ways, leading to the same result: the difference between the value of production and consumption value outside the company, and the sum of the compensation received by all actors involved in the production process.

Sales are valued at purchase price and the production of frozen and stored are valued at cost. Therefore, the production figure in the performance is assessed in terms heterogeneous. This can be solved by calculating the added value of sales rather than from the production figure for the year, based on turnover, i.e. excluding the production output and stored frozen. Purchases and changes in inventories of raw materials are consumption. The repayments are calculated accounting following the plan of the company, while the consumption of capital from the macroeconomic point of view was calculated as a fixed percentage of the replacement value (Allman, 2010). Below is the value added statement of BMW. Participants that can share the value added are:

Company employees: personnel costs.

Outside capital providers: payment for loans.

Owners of the company: payment of dividends.

Government, State, payment of taxes.

The company itself: one of the added value stays in the company, it is self-financing, which may be:

Maintenance self-financing: for maintaining the productive capacity ...