Value added

In business, the difference between the sale price and the production cost of a product is the unit profit. In economics, the sum of the unit profit, the unit depreciation cost, and the unit labor cost is the unit value added. Summing value added per unit over all units sold is total value added. Total value added is equivalent to revenue less outside purchases. Value added is a higher portion of revenue for integrated companies, e.g., manufacturing companies, and a lower portion of revenue for less integrated companies, e.g., retail companies. Total value added is very closely approximated by total labor expense plus "cash" operating profit. The first component is a return to labor and the second component is a return to capital. In national accounts used in macroeconomics, it refers to the contribution of the factors of production, i.e., capital and labor, to raising the value of a product and corresponds to the incomes received by the owners of these factors. The national value added is shared between capital and labor, and this sharing gives rise to issues of distribution.