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CA Foundation · Business Economics · Determination of National Income

A farmer sells wheat worth ₹40,000 to a flour mill. The mill produces flour and sells it for ₹55,000 to a bakery. The bakery makes bread and sells it to consumers for ₹80,000. Using the value added method, what is the total value added in the economy by these three producers?

Total value added is ₹80,000. The farmer adds ₹40,000, the mill ₹15,000 and the bakery ₹25,000. This equals the value of the final bread sold to consumers, while adding all sales figures would double count intermediate goods.

  1. A₹80,000Correct
  2. B₹1,75,000
  3. C₹1,35,000
  4. D₹40,000

Explanation

Farmer's value added = ₹40,000 (assuming no inputs). Mill = 55,000 − 40,000 = ₹15,000. Bakery = 80,000 − 55,000 = ₹25,000. Total = 40,000 + 15,000 + 25,000 = ₹80,000, which equals the final product value. The sum of 1,75,000 wrongly adds all sales.

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