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CMA Final · Entrepreneurship and Startup · Value Addition

A startup buys raw cotton at Rs 80 per metre-equivalent and, after weaving, dyeing and branding, sells finished fabric at Rs 130 per metre-equivalent. Other bought-in inputs and services used amount to Rs 20 per metre-equivalent. What is the value added per metre-equivalent?

Value added is Rs 30 per metre-equivalent. It equals the selling price of Rs 130 less all bought-in inputs, being Rs 80 of cotton and Rs 20 of other inputs and services. Ignoring the other inputs gives Rs 50, which overstates the value the startup created.

  1. ARs 30Correct
  2. BRs 50
  3. CRs 20
  4. DRs 130

Explanation

Value added = selling price minus cost of all bought-in inputs and services = 130 - (80 + 20) = Rs 30. Rs 50 ignores the other bought-in inputs and services, so it overstates value added. Rs 20 considers only the other inputs, and Rs 130 is simply the sale price.

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