Added value and profit
Distinguish the value created by production from the profit left after all costs.
What you will learn
- Calculate added value.
- Explain why added value is not profit.
Transformation creates value
Added value is the difference between selling price and the cost of bought-in materials or components. A business can add value through design, convenience, quality, branding or processing.
The value customers attach to a product is influenced by context. A higher price only improves added value if buyers are willing to pay it and the bought-in costs do not rise by the same amount.
Other costs still have to be paid
Added value is not the same as profit. Wages, rent, marketing and other operating costs may still need to be covered. A product with positive added value can be unprofitable after these costs.
When explaining a method of increasing added value, identify both its potential benefit and any extra costs or customer response it may create.
Worked example
A café buys ingredients costing $1.50 and sells a sandwich for $4.20. Calculate added value.
Show the worked solution
- Identify selling price and bought-in ingredient cost.
- Subtract 1.50 from 4.20.
- Do not call the result profit because other costs remain.
Answer $2.70 per sandwich
Common mistakes
- Do not treat added value as revenue or profit.
- Higher quality can also increase costs.
What can you explain now?
If bought-in costs rise by $0.40 and price stays fixed, what happens to added value?
Compare with the explanation
It falls by $0.40 per unit
The subtraction leaves a smaller difference.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Original StudyForA teaching content · AI-assisted checks · Human teacher review pending.
These lessons teach the topics represented in our current practice sets. They are not a complete course for every paper or option in the qualification.
Open related practice and resources