Definition of added value – What it is, Meaning and Concept

The idea of value added It is used in the field of accounting, of the finance and of the economy. One of the meanings of the concept refers to economic value that a good earns When is modified within the framework of the production process.

This means that, in a context, added value is the economic value that the production process adds to a good. Suppose that a table made of natural pine wood, without any treatment, has a selling price of 200 dollars. If an antibacterial product is applied to said table and varnished, its sale price becomes 280 dollars. The value added by this process, therefore, it is 80 dollars.

Add added value

Beyond this simple example, the technology and the industrial processes they are usually the tools that add the most value to a good. Therefore, for the economy of a countryIdeally, there are 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, value added is the difference that exists between production cost and the price from market. An automotive manufacturer spends 15,000 pesos to produce a vehicle that then, on the market, sells to 32,000. The added value for the company is 17,000 pesos per car. Keep in mind that these examples are only theoretical, since there are other factors that affect prices (such as taxes, for example).

VAT

The Value Added Tax (known by the acronym VAT) is a tax that is applied to consumption: the buyer pays it when purchasing a product. It is an indirect tax since the buyer does not pay it to the treasury, but it is the seller who receives the money from the buyer and then must pay it to the Condition.

It is worth mentioning that the concept of added value is also known by the name of value added, and the only difference usually refers to regional issues. However, the latter is more common to talk about the High value added, a characteristic of those activities that can make a product rarer.

High added value

When in the field of politics or journalism high added value is mentioned, the objective is to refer to everything that leads consumers to want more a product in particular over its alternatives. On the other hand, from the manufacturers point of view, high added value reduces production costs.

An article pigeonholed in this group can cover a need that no one else can, or even “create” one or more that consumers were not aware of having. The high added value, in short, is typical of any product that is synonymous with innovation, especially when new technologies are used for its production and when it includes them to provide out-of-the-ordinary benefits.

It is not difficult to recognize the high added value in a product, since it is usually noticed in your design, in the way in which it is advertised, in the options offered to its users and even in its price, which is usually very competitive.

Facing the competition

To get a benefit relative greater than that of the competition, a company has several options, such as the following:

* offering exactly the same at a lower price, thereby jeopardizing the permanence of the other companies in the market, thanks to the combination of a large sales volume and a cost production below normal;

* presenting a new need to consumers, sometimes also eliminating another.