Value and Non-Value-Added Costs

There are various costs that are associated with selling a particular product and its distribution. A value-added cost increases the benefits of a certain offering to customers (Kenton, 2019). At the same time, a non-value-added cost is a production expense that does not contribute to the increase in the amount clients are ready to pay for the final product (Kenton, 2019).

The following example of a value-added cost can be offered. The majority of manufacturing firms use raw materials, direct labor, and specific equipment to produce goods. These elements can be determined as value-added costs as they increase the benefits of items in customers’ perception.

From another hand, all spending on the registration of a certain good, patents, organization of business, and legal form can be considered a non-value-added cost as they do not contribute to the improvement of products but are fundamental for the work of a firm.

Reference

Kenton, W. (2019). Value-added. Investopedia. Web.