# Value added > Mediated Wiki article. Canonical URL: https://mediated.wiki/source/Value_added > Markdown URL: https://mediated.wiki/source/Value_added.md > Source: https://en.wikipedia.org/wiki/Value_added > Source revision: 1354291742 > License: Creative Commons Attribution-ShareAlike 4.0 International (https://creativecommons.org/licenses/by-sa/4.0/) For other uses, see [Value-added (disambiguation)](/source/Value-added_(disambiguation)). Not to be confused with [Surplus value](/source/Surplus_value). Difference between input value and market value **Value added** is a term in [economics](/source/Economics) for calculating the difference between [market value](/source/Market_value) of a product or service, and the sum value of its constituents. It is relatively expressed by the [supply-demand](/source/Demand_curve) curve for specific units of sale.[1] Value added is distinguished from the [accounting](/source/Accounting) term [added value](/source/Added_value) which measures only the financial profits earned upon transformational processes for specific items of sale that are available on the market. In business, *total value added* is calculated by tabulating the *unit value added* (measured by summing unit [profit](/source/Profit_(accounting)) — the difference between [sale price](/source/Price) and [production cost](/source/Production_cost), unit [depreciation](/source/Depreciation) cost, and unit [labor cost](/source/Direct_labor_cost)) per each unit sold. Thus, total value added is equivalent to [revenue](/source/Revenue) minus [intermediate consumption](/source/Intermediate_consumption).[2][3] Value added is a higher portion of revenue for [integrated companies](/source/Integrated_business_planning) (e.g. manufacturing companies) and a lower portion of revenue for less integrated companies (e.g. retail companies); total value added is very nearly approximated by [compensation of employees](/source/Compensation_of_employees), which represents a return to labor, plus [earnings before taxes](/source/Earnings_before_taxes), representative of a return to capital.[3][4] ## Definition In [microeconomics](/source/Microeconomics), value added may be defined as the market value of aggregate output of a transformation process, minus the market value of aggregate [input](/source/Factors_of_production) (or aggregate inputs) of a transformation process. One may describe value added with the help of [Ulbo de Sitter](/source/Ulbo_de_Sitter)'s design theory for production synergies. He divides transformation processes into two categories, parts and aspects. Parts can be compared to timeline stages, such as first preparing the dish, then washing it, then drying it. Aspects are equated with area specialization, for example that someone takes care of the part of the counter that consists of glass, another takes care of the part that consists of plates, a third takes care of cutlery.[4][5] An important part of understanding value added is therefore to examine delimitations. In [macroeconomics](/source/Macroeconomics), the term refers to the contribution of the factors of production (i.e. capital and labor) to raise the value of the product and increase the income of those who own the said factors. Therefore, the national value added is shared between capital and labor.[3] Outside of business and economics, value added refers to the economic enhancement that a company gives its products or services prior to offering them to the consumer, which justifies why companies are able to sell products for more than they cost the company to produce. Additionally, this enhancement also helps distinguish the company's products from those of its competitors.[6] ## National accounts Main article: [National accounts § Main components](/source/National_accounts#Main_components) The factors of production provide "services" which raise the unit price of a product (X) relative to the cost per unit of [intermediate goods](/source/Intermediate_consumption) used up in the production of X. In [national accounts](/source/National_accounts), such as the [United Nations System of National Accounts](/source/United_Nations_System_of_National_Accounts) (UNSNA) or the United States [National Income and Product Accounts](/source/National_Income_and_Product_Accounts) (NIPA), [gross value added](/source/Gross_value_added) is obtained by deducting intermediate consumption from [gross output](/source/Gross_output). Thus gross value added is equal to [net output](/source/Net_output). Net value added is obtained by deducting [consumption of fixed capital](/source/Consumption_of_fixed_capital) (or depreciation charges) from gross value added. Net value added therefore equals gross [wages](/source/Wages), pre-tax profits net of depreciation, and [indirect taxes](/source/Indirect_taxes) less subsidies. ## Value added tax Main article: [Value added tax](/source/Value_added_tax) [Value-added tax](/source/Value-added_tax) (VAT) is a [tax](/source/Tax) on sales. It is assessed incrementally on a product or service at each stage of production and is intended to tax the value that is added by that production stage, as outlined above by unit value added. ## See also - [Bang for the buck](/source/Bang_for_the_buck) - [Economic value added](/source/Economic_value_added) - [Measures of national income and output#The output approach](/source/Measures_of_national_income_and_output#The_output_approach) - [Productive and unproductive labour](/source/Productive_and_unproductive_labour) - [Surplus value](/source/Surplus_value) - [United Nations System of National Accounts (UNSNA)](/source/United_Nations_System_of_National_Accounts_(UNSNA)) - [Valorisation](/source/Valorisation) - [Value (marketing)](/source/Value_(marketing)) - [Value-added reseller](/source/Value-added_reseller) - [Value chain](/source/Value_chain) - [Value product](/source/Value_product) - [Wage share](/source/Wage_share) ## References 1. **[^](#cite_ref-1)** ["Value-Added Product: What It Means in Industry and Marketing"](https://www.investopedia.com/terms/v/valueadded.asp). Investopedia. Retrieved 14 April 2023. 1. **[^](#cite_ref-2)** ["International Economics Glossary: V"](http://www-personal.umich.edu/~alandear/glossary/v.html). *www-personal.umich.edu*. Retrieved 2021-05-17. 1. ^ [***a***](#cite_ref-:0_3-0) [***b***](#cite_ref-:0_3-1) [***c***](#cite_ref-:0_3-2) ["What does value added mean?"](https://www.definitions.net/definition/value+added#:~:text=In%20business,%20the%20difference%20between,is%20the%20unit%20value%20added.). *www.definitions.net*. Retrieved 2021-05-17. 1. ^ [***a***](#cite_ref-Kansas_4-0) [***b***](#cite_ref-Kansas_4-1) ["Value Added: Opportunities and Strategies"](https://www.agmanager.info/sites/default/files/VALADD10%25202col.pdf) (PDF). Kansas State University. Retrieved 14 April 2023. 1. **[^](#cite_ref-5)** Sitter, Sitter, L.U. de (1994). [*Synergetisch Produceren*](https://books.google.com/books?id=erdVqyi_gHQC&dq=Sitter%2C+L.U.+de%2C+%281994%29.+Synergetisch+Produceren.+Assen%3A+van+Gorcum.&pg=PA1). van Gorcum. [ISBN](/source/ISBN_(identifier)) [978-90-232-3365-7](https://en.wikipedia.org/wiki/Special:BookSources/978-90-232-3365-7).{{[cite book](https://en.wikipedia.org/wiki/Template:Cite_book)}}: CS1 maint: multiple names: authors list ([link](https://en.wikipedia.org/wiki/Category:CS1_maint:_multiple_names:_authors_list)) 1. **[^](#cite_ref-6)** Hayes, Adam (2020-08-28). ["Why Value-Added Matters"](https://www.investopedia.com/terms/v/valueadded.asp). *Investopedia*. Retrieved 2021-05-17. ## Further reading - Alan Deardorff *[Deardorff's Glossary of International Economics](http://www-personal.umich.edu/~alandear/glossary/)* (Click "V' for "Value added.") - Edgar Z. Palmer, *The meaning and measurement of the national income, and of other social accounting aggregates*. - [Paul A. Samuelson](/source/Paul_Samuelson) and [William D. Nordhaus](/source/William_D._Nordhaus) (2004) *[Economics](/source/Economics_(textbook))*. "Glossary of Terms," Value added. - [Anwar Shaikh](/source/Anwar_Shaikh_(Economist)) & Ahmet Ertugrul Tonak, *Measuring the Wealth of Nations*. CUP. - M. Yanovsky, *Anatomy of Social Accounting Systems*. ## External links - [What Does Value Add Mean?](http://www.sideroad.com/Sales_Techniques/value-add-sales.html) - [Value Add - Your Value Add is what Matters to Your Company](http://humanresources.about.com/od/glossaryv/g/value_add.htm) [Archived](https://web.archive.org/web/20160513024150/http://humanresources.about.com/od/glossaryv/g/value_add.htm) 2016-05-13 at the [Wayback Machine](/source/Wayback_Machine) Authority control databases International GND National United States France BnF data Spain Israel Other Yale LUX --- Adapted from the Wikipedia article [Value added](https://en.wikipedia.org/wiki/Value_added) by Wikipedia contributors ([contributor history](https://en.wikipedia.org/wiki/Value_added?action=history)). Available under [Creative Commons Attribution-ShareAlike 4.0 International](https://creativecommons.org/licenses/by-sa/4.0/). Changes may have been made.