What elements are excluded from the output of the enterprise under value added method?
Answer & explanation
Correct answer: option 4
The correct answer is option 4: all of these
Under the value-added method of calculating national income, the following elements are excluded from the output of the enterprise:
- Raw material consumption: This is not included because the value added is calculated by subtracting the cost of raw materials from the total output. Raw materials are considered an intermediate input.
- Capital consumption: Also known as depreciation, this is excluded when calculating value added as it represents the wear and tear on capital goods used in the production process.
- Expenditure on input used in the production process: This includes costs of intermediate goods and services used to produce final goods, which are deducted to determine the value added.