Value added cost definition
/What is Value Added Cost?
A value added cost is incurred when an asset is consumed in order to increase the value of goods or services to the consumer. Stated differently, a value added cost is a cost for which a customer is willing to pay, since it adds to the value of the product or service received.
Examples of value added costs are the direct materials, direct labor, and installation costs associated with a sale. These costs are typically a minority of the total costs incurred by a business, which leaves a significant opportunity to strip out non-value-added costs, thereby increasing profits or allowing for the reduction of product prices.