A farmer buys seed for 20 cents that is used to grow wheat. The farmer sells the wheat to the miller for 35 cents, and the miller makes flour, which is then sold to the baker for 55 cents. The baker makes bread and sells it to the grocer for 80 cents, and the grocer sells the bread to a family for $1. What is the value added of the baker and what is the sum of the value added at each stage of production

The Value added of the Baker is $0.25

The sum of the value added at each stage of production is :

Farmer = $0.15

Miller = $0.20

Baker = $0.25

Grocer = $0.20

Total Value added = $0.80

Explanation:

Farmer cost = $0.20

Farmer Margin = $0.15

Farmer Sells to Miller = $0.35

Miller Margin = $0.20

Miller sells to Baker = $0.55

Baker Margin = $0.25

Baker sells to Grocer = $0.80

Grocer Margin = $0.20

Grocer sells to Family = $1.0

The concept of Value added states that a product receives extra features from the beginning of its production cycle to when it gets into the hands of its final consumers. The process of it being handed down through the Value Chain results in changes in Prices between the Input Costs and selling Prices. This difference is identified as Value added.

In this question, the Farmer added Value by turning a seed of wheat to a harvest of wheat which he sold to the Miller. The Miller further added Value by transforming the wheat into flour and selling this to the Baker. The Baker  adds value by producing a product the consumer needs and selling to the Grocer, in his case bread. The Grocer added value by making it available on the shelf and within the neighborhood of the consumer.

This is how value is added. And it varies per product and per channel of distribution too.

What is the value added of the baker and what is the sum of the value added at each stage of production?

Explanation:

seed producer adds = selling price = $0.20

farmer adds = selling price - cost of seeds = $0.35 - $0.20 = $0.15

miller adds = selling price - cost of wheat = $0.55 - $0.35 = $0.20

baker adds = selling price - cost of flour = $0.80 - $0.55 = $0.25

grocer adds = selling price - cost of bread = $1 - $0.80 = $0.20

total value added = $0.20 + $0.15 + $0.20 + $0.25 +$0.20 = $1

The value added method simply adds the contribution of every sector in the economy to the GDP. The total value added will always equal the final price of the goods and services sold.

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