Transforming Resources Into Goods & Services - Adding Value

How businesses make profit

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  • Created by: Sameer
  • Created on: 14-12-10 23:49

Transforming Goods and Adding Value

Business transform Raw Materials into finished products and sell them.

There are three steps: Input, Process, Output

Inputs mainly consist of Raw Materials

Processes consist of machinery/workload that transform the raw materials

Outputs are the finished product

Customers pay more for the goods than the business paid (raw materials and manufacture costs) 

The difference between the selling price and the cost to produce the product is called Value Added

The value added leaves a Surplus which a business uses to pay for bills/overheads, the money left over is the Profit

The greater the value added, the higher the profit

Luxury items such as designer clothes have high added value

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Business Classifications

There are three divisions: Primary, Secondary, Tertiary

Primary Sector

  • Industries that extract Raw Materials from naturals resources (farming/mining)
  • There are fewer businesses running in the Primary Sector because it is cheaper to import raw materials

Secondary Sector

  • Processes the raw materials that come from the Primary Sector
  • For example Manufacturing and Construction
  • There are also fewer businesses running in the Secondary Sector due to companies moving production around the world where manufacturing costs are lower, such as India
  • This increases the companies profits as they have a lower expenditure

Tertiary Sector

  • The tertiary sector is about providing a service
  • For example shops, hotels, restaurants, deliveries 
  • The Tertiary Sector has grown, this is due to de-industrialisation, where machinery is taking over jobs in the primary and secondary sectors 
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