Describe the Methods Used to Calculate Value Added. How...

Essay n °=1: Describe the methods used to calculate value added. How does value added contribute towards understanding the connections between the business and its product markets? Use relevant examples to illustrate points. Within the framework of value added in general, Pigou and Bernard Cox suggested the calculation of Value Added that is used for classical nationals accounts. In 1920, Pigou gave his interpretation of value added, consisting of being able to precisely determine the earnings of a company; whereas the sales turnover isn’t precise since the expenses aren’t take into account. In this fact, he presents value added as the subtraction of the output related to the inputs. Thus, outputs that aren’t generated by our self†¦show more content†¦Instead, they by the parts, such as the seating, bolts and motors, from smaller companies which can then be assembled to produce the final product i.e. the car. But based on what we said before, it would mean that for these, companies, their value added ratio would be very low. So how could be explained how worldwide companies like NIKE, which produce nothing entirely by themselves, have such high ratio of value added? This brings us to study the strategy of differentiation of products in businesses. Calculating value added, could also contribute to determine a strategy of differentiation of products in businesses. Lets take the previous example NIKE. Nike has a low vertical integration but a high value added (thanks to its logo). Since this value added is marketing, value added is in this case an intangible entity. Differentiation is one of the competitive advantages. In general, most of industry produces a huge number of products that are similar but not identical. Amongst all varieties, a few are produced, and consumers usually buy a fraction of all the varieties of products available. 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