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CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

A flour mill buys wheat worth ₹60,000 from farmers and sells flour worth ₹90,000 to a bakery. The bakery makes bread and sells it to households for ₹1,30,000. Using the value added method, what is the total value added by the mill and the bakery together?

The total value added across the whole chain is ₹1,30,000, equal to the final bread value. Farmers add ₹60,000, the mill ₹30,000 and the bakery ₹40,000. Counting only the mill and bakery would give ₹70,000 and leave out the farmers.

  1. A₹70,000
  2. B₹1,30,000Correct
  3. C₹2,20,000
  4. D₹1,00,000

Explanation

Mill value added = 90,000 - 60,000 = 30,000. Bakery value added = 1,30,000 - 90,000 = 40,000. Together 70,000 for these two. The farmers' output of 60,000 is also value added in the chain, so the total is 60,000 + 30,000 + 40,000 = 1,30,000, which equals the final sale value. Hence 1,30,000 for the whole chain. Taking only the mill and bakery gives 70,000, which omits the farmers' contribution.

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