Calculate and explain added value
Calculate the value added between a product's selling price and the cost of bought-in materials or components.
Cambridge IGCSE (9–1) Business 0774, 2027–2029 Version 2, Topic 1. Apply concepts to the stated business and weigh benefits against costs and stakeholder effects. Written practice is self-checked and does not certify exam readiness
Before you begin
- No previous business study is assumed. Read each scenario for the decision-maker, objective, available evidence and constraints.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
How is added value per unit calculated?
What you will learn
- Calculate added value per unit
- Distinguish added value from profit
- Explain ways a business may increase added value
Use the syllabus relationship
Added value per unit = selling price − cost of bought-in materials or components. The comparison asks how much value the business adds beyond those purchased inputs.
If materials cost $2.40 and the product sells for $6.00, added value is $3.60 per unit. Keep units and currency clear, and check that the subtraction uses the correct bought-in cost.
Added value is not profit
Wages, rent, energy, finance and other costs may still need to be paid. Positive added value does not prove that the business makes a profit.
Design, quality, convenience, branding or processing may support a higher selling price, but customers must value the change and any extra costs must be considered.
Pause and explain
A product sells for $14 and bought-in parts cost $5. What is added value per unit?
Worked example
A maker buys components for $8 and sells the finished lamp for $21. Calculate added value per lamp and explain why this is not profit.
Show the worked solution
- Start with selling price.
- Subtract the cost of bought-in components: 21 − 8.
- Identify another cost not included in this calculation.
Answer $13 added value per lamp; wages, rent and other costs still affect profit.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A reusable bottle sells for $12.50 and purchased materials cost $4.20. Calculate added value per bottle.
Give me a hint
Subtract bought-in material cost from selling price.
Compare my reasoning
- Write 12.50 − 4.20.
- Align decimal places.
- Retain the per-bottle unit.
$8.30 per bottle.
Look for these in your work
- Correct subtraction
- Currency retained
- Unit stated
A business adds gift packaging costing $0.60 and raises the selling price by $1.00. What happens to added value per unit, other costs unchanged?
Give me a hint
Compare the increase in price with the increase in bought-in cost.
Compare my reasoning
- Selling price rises by $1.00.
- Bought-in packaging cost rises by $0.60.
- The difference between the changes is $0.40.
Added value rises by $0.40 per unit, assuming the product still sells at the higher price.
Look for these in your work
- Both changes considered
- Net change calculated
- Sales assumption stated
A student says a product with $4 added value must earn $4 profit. Correct the claim with two relevant costs.
Give me a hint
Name costs not subtracted in the added-value calculation.
Compare my reasoning
- Added value subtracts only the specified bought-in inputs.
- Wages and rent are examples of further costs.
- Profit depends on revenue and all relevant costs.
The claim is incorrect: $4 is the amount above bought-in material/component cost. Wages, rent, energy and other costs may reduce profit, so the product could even make a loss.
Look for these in your work
- Added value defined
- Further costs named
- Profit conclusion bounded
Common mistakes
- Calling added value revenue or profit
- Subtracting selling price from material cost
- Ignoring whether a proposed quality improvement adds cost
What can you explain now?
How is added value per unit calculated?
Compare with the explanation
Selling price minus bought-in material or component cost
This is the syllabus calculation.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Calculate added value from two figures, then name a cost that prevents it from being profit.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.