Output (Value Added) Method of Measurement Practice Questions — JAMB UTME

The table below presents the market transactions across three stages in the production of wooden furniture:

Stage of Production	Output Value (₦)	Cost of Intermediate Inputs (₦)
Logging	40,000	0
Sawmilling	75,000	40,000
Furniture Manufacturing	130,000	75,000

What is the total net contribution of this production chain to Gross Domestic Product (GDP) using the output method?

₦130,000

₦245,000

₦115,000

₦90,000

Show answer & explanation

Answer: ₦130,000

Answer

The total net contribution to Gross Domestic Product (GDP) is ₦130,000.

Under the output (value added) method of national income accounting, contribution to GDP is determined by summing the value added at each stage of production. Value added is equal to gross output value minus intermediate input costs: Logging adds ₦40,000, Sawmilling adds ₦35,000 (₦75,000 - ₦40,000), and Furniture Manufacturing adds ₦55,000 (₦130,000 - ₦75,000). Total contribution to GDP is ₦40,000 + ₦35,000 + ₦55,000 = ₦130,000, which also corresponds directly to the final sale value of the consumer product.

Step-by-Step Solution

1

Calculate the value added at each stage of production by subtracting intermediate input costs from output value.

Logging:

₦40,000 - ₦0 = ₦40,000

; Sawmilling:

₦75,000 - ₦40,000 = ₦35,000

; Furniture Manufacturing:

₦130,000 - ₦75,000 = ₦55,000

.

The output method measures national income by isolating the net value created at each stage of production.

2

Sum the value added across all production stages.

\text{Total Value Added} = ₦40,000 + ₦35,000 + ₦55,000 = ₦130,000

.

Summing net additions to output yields the actual total value of final goods produced without double counting.

Key Concept

Output (Value Added) Method of Measurement

Estimated Time:1m 30s

Question 2Question →

Match each stage of production in a cocoa-to-chocolate processing chain with its correct Net Value Added contribution to National Income based on the output method of measurement.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Stage 1 matches Net Value Added of ₦120,000; Stage 2 matches Net Value Added of ₦150,000; Stage 3 matches Net Value Added of ₦210,000; Stage 4 matches Net Value Added of ₦170,000.

The output (value added) method measures national income by summing the net incremental value created at each stage of production. For each stage, Value Added = Gross Value of Output minus Cost of Intermediate Inputs. This ensures intermediate goods are counted only once and eliminates double counting.

Step-by-Step Solution

1

Calculate Value Added for Stage 1

Gross Output (₦120,000) - Intermediate Purchases (₦0) = ₦120,000

The initial primary production stage has no intermediate cost inputs.

2

Calculate Value Added for Stage 2

Gross Output (₦270,000) - Intermediate Cost (₦120,000) = ₦150,000

Deduct the cost of raw cocoa beans purchased from Stage 1 to avoid double counting.

3

Calculate Value Added for Stage 3

Gross Output (₦480,000) - Intermediate Cost (₦270,000) = ₦210,000

Deduct the cost of cocoa butter purchased from Stage 2.

4

Calculate Value Added for Stage 4

Gross Output (₦650,000) - Intermediate Cost (₦480,000) = ₦170,000

Deduct the wholesale cost of finished chocolates from final retail revenue.

Key Concept

Output (Value Added) Method of Measurement

Question 3Question →

Match each stage of production in a leather shoe manufacturing process with its correct Value Added contribution to National Income.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Cattle Ranching matches Value Added = ₦4,000; Leather Tanning matches Value Added = ₦6,000; Shoe Manufacturing matches Value Added = ₦8,000; Retail Distribution matches Value Added = ₦7,000.

Each stage's contribution to national income is determined by subtracting the value of intermediate inputs purchased from the value of gross output generated at that specific stage.

Step-by-Step Solution

1

Calculate Value Added for Cattle Ranching

Value Added = ₦4,000 - ₦0 = ₦4,000

Value added is calculated as Gross Output minus Intermediate Inputs.

2

Calculate Value Added for Leather Tanning

Value Added = ₦10,000 - ₦4,000 = ₦6,000

Subtract the cost of raw hides from the selling price of tanned leather.

3

Calculate Value Added for Shoe Manufacturing

Value Added = ₦18,000 - ₦10,000 = ₦8,000

Subtract the cost of tanned leather from the wholesale price of shoes.

4

Calculate Value Added for Retail Distribution

Value Added = ₦25,000 - ₦18,000 = ₦7,000

Subtract the wholesale price of shoes from the final retail price.

Key Concept

The Output (Value Added) Method calculates National Income by summing the net value added at each production stage (Gross Output minus Intermediate Consumption) to avoid double counting.

Question 4Question →

A cotton farmer sells raw cotton to a textile mill for ₦50,000. The textile mill processes the cotton into fabric and sells it to a garment factory for ₦120,000. The garment factory turns the fabric into shirts and sells them to final consumers for ₦200,000. What is the total contribution of this production process to National Income using the output (value-added) method?

₦200,000

₦370,000

₦150,000

₦170,000

Show answer & explanation

Answer: ₦200,000

Answer

The total contribution to National Income is ₦200,000.

The output method avoids double counting by summing only the incremental net value created at each production stage (₦50,000 + ₦70,000 + ₦80,000 = ₦200,000), which also equals the final market value of the consumer goods.

Step-by-Step Solution

1

Calculate the value added by the cotton farmer

₦50,000 - ₦0 = ₦50,000

The raw cotton has no specified intermediate cost.

2

Calculate the value added by the textile mill

₦120,000 - ₦50,000 = ₦70,000

Subtract the cost of intermediate raw cotton from the fabric sales value.

3

Calculate the value added by the garment factory

₦200,000 - ₦120,000 = ₦80,000

Subtract the cost of intermediate fabric from the final shirt sales value.

4

Sum the net value added at each stage

₦50,000 + ₦70,000 + ₦80,000 = ₦200,000

The output method measures National Income by summing the net value added at every stage of production.

Key Concept

Output (Value Added) Method of Measurement

Question 5Question →

Match each stage of production in the palm oil supply chain with its correct net Value Added contribution to National Income based on the transaction values provided.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Oil palm farming matches Value added of ₦10,000; Oil milling matches Value added of ₦20,000; Refining matches Value added of ₦35,000; Retailing matches Value added of ₦15,000.

Under the value-added approach, the contribution of each stage to GDP is calculated as Output Value minus Intermediate Consumption. For farming: ₦10,000 - ₦0 = ₦10,000. For milling: ₦30,000 - ₦10,000 = ₦20,000. For refining: ₦65,000 - ₦30,000 = ₦35,000. For retailing: ₦80,000 - ₦65,000 = ₦15,000.

Step-by-Step Solution

1

Calculate Value Added for Stage 1 (Farming)

₦10,000 - ₦0 = ₦10,000

Value added equals total output value minus intermediate input costs.

2

Calculate Value Added for Stage 2 (Milling)

₦30,000 - ₦10,000 = ₦20,000

Subtract the cost of intermediate input (raw fruit at ₦10,000) from output value (crude oil at ₦30,000).

3

Calculate Value Added for Stage 3 (Refining)

₦65,000 - ₦30,000 = ₦35,000

Subtract the cost of crude oil (₦30,000) from the refined oil output value (₦65,000).

4

Calculate Value Added for Stage 4 (Retailing)

₦80,000 - ₦65,000 = ₦15,000

Subtract the wholesale purchase price (₦65,000) from the retail selling price (₦80,000).

Key Concept

The Output (Value Added) method measures national income by summing the net value added at each stage of production to prevent double counting.

Question 6Question →

A wheat farmer sells harvested wheat to a flour mill for ₦150,000. The flour mill processes the wheat into flour and sells it to a bakery for ₦220,000. The bakery uses the flour to produce bread, which is sold to final consumers for ₦300,000. Using the output (value added) method of national income accounting, what is the net contribution of this production chain to Gross Domestic Product (GDP)?

₦300,000

₦670,000

₦370,000

₦150,000

Show answer & explanation

Answer: ₦300,000

Answer

The net contribution of this production chain to GDP is ₦300,000.

The output (value added) method measures GDP by taking the gross value of output at each stage of production and subtracting the cost of intermediate consumption. The farmer adds ₦150,000, the mill adds ₦70,000 (₦220,000 - ₦150,000), and the bakery adds ₦80,000 (₦300,000 - ₦220,000). Summing these gives ₦300,000, which is equal to the value of the final consumer product.

Step-by-Step Solution

1

Calculate the value added by the wheat farmer

Value Added = ₦150,000 - ₦0 = ₦150,000

The raw wheat is sold for ₦150,000 with zero intermediate input costs recorded.

2

Calculate the value added by the flour mill

Value Added = ₦220,000 - ₦150,000 = ₦70,000

The mill buys wheat for ₦150,000 and sells flour for ₦220,000.

3

Calculate the value added by the bakery

Value Added = ₦300,000 - ₦220,000 = ₦80,000

The bakery buys flour for ₦220,000 and sells bread to consumers for ₦300,000.

4

Sum the value added across all stages to find total GDP contribution

Total Value Added = ₦150,000 + ₦70,000 + ₦80,000 = ₦300,000

The output method sums the net additions to output at each production stage to avoid double counting.

Key Concept

Value Added Method of National Income Accounting

Question 7Question →

The table below details the transactions within a cassava-to-biscuit supply chain:

Stage of Production	Gross Output Value (₦)	Cost of Intermediate Inputs (₦)
Cassava Farming	140,000	0
Starch Processing	290,000	140,000
Biscuit Manufacturing	$X$	290,000
Retail Distribution	680,000	490,000

If the net value added at the Biscuit Manufacturing stage is $\text{₦}200,000$ , what is the value of gross output $X$ at the Biscuit Manufacturing stage, and what is the total amount of double counting that would occur if national income were calculated by summing the gross output values of all four stages?

X = \text{₦}490,000

and double counting =

\text{₦}920,000

X = \text{₦}490,000

and double counting =

\text{₦}1,600,000

X = \text{₦}290,000

and double counting =

\text{₦}720,000

X = \text{₦}490,000

and double counting =

\text{₦}680,000

Show answer & explanation

Answer: $X = \text{₦}490,000$ and double counting = $\text{₦}920,000$

Answer

Gross output

X = \text{₦}490,000

and double counting =

\text{₦}920,000

The gross output

X

at the Biscuit Manufacturing stage is derived by adding its value added (

\text{₦}200,000

) to its intermediate input cost (

\text{₦}290,000

), yielding

\text{₦}490,000

. Summing the gross output across all stages gives

\text{₦}1,600,000

, whereas the true national income contribution (total value added) is

\text{₦}680,000

. Subtracting net value added from total gross output isolates the double counting error of

\text{₦}920,000

.

Step-by-Step Solution

1

Calculate the unknown gross output

X

for Biscuit Manufacturing

X = \text{Cost of Intermediate Inputs} + \text{Value Added} = \text{₦}290,000 + \text{₦}200,000 = \text{₦}490,000

Value added is defined as Gross Output Value minus Intermediate Input Costs.

2

Calculate total Gross Output by summing sales across all four production stages

\text{Total Gross Output} = \text{₦}140,000 + \text{₦}290,000 + \text{₦}490,000 + \text{��}680,000 = \text{₦}1,600,000

The output method gross figure is the unadjusted sum of all transactions.

3

Determine the true Net Contribution (Total Value Added) to National Income

\text{Net Contribution} = (140,000 - 0) + (290,000 - 140,000) + 200,000 + (680,000 - 490,000) = \text{₦}680,000

The net contribution equals the sum of value added at all stages, which also equals the final sale price at Retail Distribution.

4

Calculate the amount of double counting that occurs when summing gross output values

\text{Double Counting Amount} = \text{Total Gross Output} - \text{Net Value Added} = \text{₦}1,600,000 - \text{₦}680,000 = \text{₦}920,000

Double counting represents the repetitive inclusion of intermediate input values across successive production stages.

Key Concept

Output (Value Added) Method and Double Counting Avoidance

Estimated Time:2m 0s

Question 8Question →

A production chain involving limestone quarrying, cement manufacturing, building construction, and real estate sales recorded the following market transaction values:

Stage of Production	Selling Price (₦)	Cost of Intermediate Inputs (₦)
Limestone Quarrying	80,000	0
Cement Manufacturing	210,000	80,000
Building Construction	350,000	210,000
Real Estate Retail	420,000	350,000

Match each stage of production on the left with its correct net Value Added contribution to National Income on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Limestone Quarrying matches ₦80,000; Cement Manufacturing matches ₦130,000; Building Construction matches ₦140,000; Real Estate Retail matches ₦70,000.

Under the output method of national income measurement, net value added is obtained by subtracting intermediate consumption from total output value at each stage of production. For the given chain: Limestone Quarrying adds ₦80,000, Cement Manufacturing adds ₦130,000, Building Construction adds ₦140,000, and Real Estate Retail adds ₦70,000.

Step-by-Step Solution

1

Recall the net Value Added formula for national income accounting.

\text{Value Added} = \text{Gross Output (Selling Price)} - \text{Intermediate Consumption (Input Cost)}

To prevent double counting, only the net contribution of each production stage is included.

2

Calculate net Value Added for Limestone Quarrying.

\text{₦}80,000 - \text{₦}0 = \text{₦}80,000

Primary extraction stage has zero intermediate cost.

3

Calculate net Value Added for Cement Manufacturing.

\text{₦}210,000 - \text{₦}80,000 = \text{₦}130,000

Deduct the cost of raw limestone purchased from the quarry.

4

Calculate net Value Added for Building Construction.

\text{₦}350,000 - \text{₦}210,000 = \text{₦}140,000

Deduct the cost of manufactured cement purchased from the cement factory.

5

Calculate net Value Added for Real Estate Retail.

\text{₦}420,000 - \text{₦}350,000 = \text{₦}70,000

Deduct the construction cost of the building from the final property sale price.

Key Concept

Output (Value Added) Method of Measurement

Question 9Question →

A logging firm extracts raw timber worth $\text{₦}200,000$ and sells it to a sawmill. The sawmill processes the timber into wooden planks and sells them to a construction company for $\text{₦}350,000$ . What is the total value added contributed to Gross Domestic Product (GDP) by these two stages of production?

\text{₦}350,000

\text{₦}550,000

\text{₦}150,000

\text{₦}200,000

Show answer & explanation

Answer: $\text{₦}350,000$

Answer

The total value added contributed to GDP by the two stages of production is

\text{₦}350,000

.

Under the output (value added) method of national income measurement, GDP is calculated by summing the net value added at each stage of production. The logging firm adds

\text{₦}200,000

and the sawmill adds

\text{₦}150,000

(

\text{₦}350,000 - \text{₦}200,000

). Summing these gives a total contribution to GDP of

\text{₦}350,000

, which is also equivalent to the value of final output.

Step-by-Step Solution

1

Calculate the value added by the logging firm.

Value Added (Logging) =

\text{₦}200,000 - \text{₦}0 = \text{₦}200,000

The raw timber is harvested without prior purchased intermediate inputs, so its full sales value is value added.

2

Calculate the value added by the sawmill.

Value Added (Sawmill) =

\text{₦}350,000 - \text{₦}200,000 = \text{₦}150,000

Value added is computed by subtracting intermediate consumption (timber cost) from gross output value (planks sale price).

3

Sum the value added across both production stages.

Total Value Added =

\text{₦}200,000 + \text{₦}150,000 = \text{₦}350,000

The output method avoids double counting by summing only net value additions at each stage of production.

Key Concept

Output (Value Added) Method of Measuring National Income

Estimated Time:1m 0s

Question 10Question →

The table below presents the transaction values across three stages of a agricultural-manufacturing production chain in an economy:

Stage of Production	Value of Output ( $\text{₦}$ )	Cost of Intermediate Inputs ( $\text{₦}$ )
Sugarcane Farming	$150,000$	$0$
Sugar Refining	$280,000$	$150,000$
Confectionery Manufacturing	$450,000$	$280,000$

Using the output (value added) method of national income accounting, what is the total contribution of this production chain to the Gross Domestic Product (GDP)?

\text{₦}880,000

\text{₦}450,000

\text{₦}430,000

\text{₦}300,000

Show answer & explanation

Answer: $\text{₦}450,000$

Answer

The total contribution of this production chain to GDP is

\text{₦}450,000

.

Under the output (value added) method of national income accounting, GDP contribution is computed by calculating the net value added at each production stage (Value of Output minus Cost of Intermediate Inputs) and summing them up. Sugarcane farming adds

\text{₦}150,000

, sugar refining adds

\text{₦}130,000

, and confectionery manufacturing adds

\text{₦}170,000

, giving a total net contribution of

\text{₦}450,000

. Alternatively, this equals the market value of the final consumer product (confectionery).

Step-by-Step Solution

1

Calculate the value added at each individual stage of production using the formula:

\text{Value Added} = \text{Value of Output} - \text{Cost of Intermediate Inputs}

.

Sugarcane Farming:

150,000 - 0 = \text{₦}150,000

; Sugar Refining:

280,000 - 150,000 = \text{₦}130,000

; Confectionery Manufacturing:

450,000 - 280,000 = \text{₦}170,000

.

The output method avoids double counting by isolating only the incremental value created at each stage.

2

Sum the net value added across all three stages to determine total GDP contribution.

Total GDP Contribution =

150,000 + 130,000 + 170,000 = \text{₦}450,000

.

National income is the aggregate of net value added by all productive units in the economy.

Key Concept

Output (Value Added) Method of Measurement

Output (Value Added) Method of Measurement

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