Value Added Method is the process where a certain value is added to a good at every step of production.

For Example : To produce paper, at first, wood is bought at ₹ 500 per tree and then it is sold to the paper miller at ₹ 550, where ₹ 50 were added as his profit, and other resources used are electricity, labour and transport. The miller further produces paper and sells it at ₹650 adding his profit and efforts. It is further sold to Wholesaler at a price of ₹800. Thereby the cost is increased because of effort made at each step such as salary of the labour, transport, and electricity .

The miller keeps ₹150 as his own profit as his transport and efforts were also added. The wholesaler sold the product at ₹900 to the retailer, and finally, it was bought by the consumer for ₹950. Thus, we see that a certain value was added at each step of production in the form of profit, transportation cost, and individual effort. Thus, the original cost of the product was ₹ 550 and by the time it was launched in the market), it was ₹ 950. The increase in the cost at each step was due to the efforts made and resources used such as human resources, electricity, transport, money, taxes, and machines.