VI. THE PRODUCTION ACCOUNT
C. The measurement of production
1. Introduction
| 6.37. | In the System, the intermediate inputs are recorded and valued at the time they enter the production process, while outputs are recorded and valued as they emerge from the process. Intermediate inputs are normally valued at purchasers' prices and outputs at basic prices, or alternatively at producers' prices if basic prices are not available. The increase between the value of the intermediate inputs and the value of the outputs is the gross value added against which must be charged the consumption of fixed capital, taxes on production (less subsidies) and compensation of employees. The positive or negative balance remaining is the net operating surplus or mixed income. The definition, measurement and valuation of outputs and inputs is, therefore, fundamental to the System and is described in detail in the following sections. |
2. Output (P.1)
| 6.38. | Certain goods and services produced by processes of production, including services produced by ancillary activities, are used up within the same accounting period by other processes carried out within the same establishment. Such goods and services do not leave the establishment and are therefore not counted as part of the establishment's output. Thus, output is a concept that applies to a producer unit - an establishment or enterprise - rather than a process of production. Output has to be defined in the context of a production account, and production accounts are compiled for establishments or enterprises, and not for processes of production. Output therefore consists only of those goods or services that are produced within an establishment that become available for use outside that establishment. When an enterprise contains more than one establishment, the output of the enterprise is the sum of the outputs of its component establishments. |
| 6.39. | For simplicity, the output of most goods or services is usually recorded when their production is completed. However, when it takes a long time to produce a unit of output, it becomes necessary to recognize that output is being produced continuously and to record it as "work-in-progress". For example, the production of certain agricultural goods or large durable goods such as ships or buildings may take months or years to complete. In such cases, it would distort economic reality to treat the output as if it were all produced at the moment of time when the process of production happens to terminate. In any case, whenever a process of production, however long or short, extends over two or more accounting periods, it is necessary to calculate the work-in-progress completed within each of the periods in order to be able to measure how much output is produced in each period. |
| 6.40. | Output in the form of finished goods or services is ready to be supplied or provided to other institutional units. However, work-in-progress consists of output which, by definition, is not complete and, therefore, is not yet in a state in which it is normally marketed. In due course, however, the work-in-progress is transformed into a finished product that is marketable. |
| 6.41. | Goods or services produced as outputs may be used in several different ways and by listing these uses it is possible to obtain a clearer indication of the coverage of output. Apart from certain service producers, such as financial intermediaries and wholesale and retail traders whose outputs have special characteristics, goods or services produced as outputs must be disposed of by their owners in one or more of the following ways during the period in which they are produced:
(a) They may be sold: (only goods or services sold at economically significant prices are included here);
(b) They may be bartered in exchange for other goods, services or assets, provided to their employees as compensation in kind, or used for other payments in kind;
(c) They may enter the producer's inventories prior to their eventual sale, barter or other use: incomplete outputs enter the producer's inventories in the form of additions to work-in-progress;
(d) They may be supplied to another establishment belonging to the same enterprise for use as intermediate inputs into the latter's production;
(e) They may be retained by their owners for own final consumption or own gross fixed capital formation;
(f) They may be supplied free, or sold at prices that are not economically significant, to other institutional units, either individually or collectively. |
| 6.42. | The entire output of an establishment or enterprise must be used in one or other of the above ways. For example, some of the crop produced by a farmer may be sold or bartered; some may be used for final consumption by members of the farmer's household; while the remainder may be put into inventory for future sale or use. |
| 6.43. | In practice, some of the goods sold or otherwise used within any given accounting period may have been withdrawn from inventories of goods produced in previous periods. Thus, in the normal situation in which the available accounting data on sales or other uses refer to the total sales or other uses in that period, it is necessary to deduct the value of such withdrawals from the value of total sales or uses to obtain the output of the period in question. It is therefore necessary to record the value of changes in inventories, i.e., entries less withdrawals, and not simply additions to inventories. This leads to the well-known accounting identity:
the value of output = the value of total sales or other uses of goods or services produced as outputs + the value of changes in the inventories of goods produced as outputs. |
Market output, output produced for own final use and other non-market output
| 6.44. | A fundamental distinction is drawn between market output, output produced for own final use and other non-market output. |
Market output (P.11)
| 6.45. | Market output is output that is sold at prices that are economically significant or otherwise disposed of on the market, or intended for sale or disposal on the market. Prices are said to be economically significant when they have a significant influence on the amounts the producers are willing to supply and on the amounts purchasers wish to buy. Apart from certain service industries for which special conventions are adopted, the value of the market output of a producer is given by the sum of the values of the following items for the period in question:
(a) The total value of goods and services sold (at economically significant prices);
(b) The total value of goods or services bartered;
(c) The total value of goods or services used for payments in kind, including compensation in kind;
(d) The total value of goods or services supplied by one establishment to another belonging to the same market enterprise to be used as intermediate inputs;
(e) The total value of changes in inventories of finished goods and work-in-progress intended for one or other of the above uses.
Items (a) to (d) refer to values of all goods and services sold or otherwise disposed of, whether produced in the current period or previous periods. |
Output produced for own final use (P.12)
| 6.46. | This type of output consists of goods or services that are retained for their own final use by the owners of the enterprises in which they are produced. As corporations have no final consumption, output for own final consumption is produced only by unincorporated enterprises: for example, agricultural goods produced and consumed by members of the same household. The output of domestic and personal services produced for own consumption within households is not included, however, for reasons already given, although housing services produced for own consumption by owner-occupiers and services produced on own account by employing paid domestic staff are included under this heading. |
| 6.47. | Goods or services used for own gross fixed capital formation can be produced by any kind of enterprise, whether corporate or unincorporated. They include, for example, the special machine tools produced for their own use by engineering enterprises, or dwellings, or extensions to dwellings, produced by households. A wide range of construction activities may be undertaken for the purpose of own gross fixed capital formation in rural areas in some countries, including communal construction activities undertaken by groups of households. |
| 6.48. | The value of output produced for own final use is given by the sum of the values of the following items for the period in question:
(a) The total value of goods and services produced by household enterprises and consumed by the same households;
(b) The total value of the fixed assets produced by an establishment that are retained within the same enterprise for use in future production (own-account gross fixed capital formation);
(c) The total value of changes in inventories of finished goods and work-in-progress intended for one or other of the above uses
Additions to work-in-progress on structures intended for own use are treated as acquisitions of fixed assets by their producers.
They are therefore recorded under (b) instead of (c) above. Goods or services produced for own final use are valued at the basic prices of similar products sold on the market or by their costs of production if no suitable basic prices are available. |
Other non-market output (P.13)
| 6.49. | This consists of goods and individual or collective services produced by non-profit institutions serving households (NPISHs) or government that are supplied free, or at prices that are not economically significant, to other institutional units or the community as a whole. Such output may be produced for two reasons:
(a) It may be technically impossible to make individuals pay for collective services because their consumption cannot be monitored or controlled. The pricing mechanism cannot be used when transactions costs are too high and there is market failure. The production of such services has to be organized collectively by government units and financed out of funds other than receipts from sales, namely taxation or other government incomes;
(b) Government units and NPISHs may also produce and supply goods or services to individual households for which they could charge but choose not to do so as a matter of social or economic policy. The most common examples are the provision of education or health services, free or at prices that are not economically significant, although other kinds of goods and services may also be supplied. |
| 6.50. | A price is said to be not economically significant when it has little or no influence on how much the producer is prepared to supply and is expected to have only a marginal influence on the quantities demanded. It is thus a price that is not quantitatively significant from the point of view of either supply or demand. Such prices are likely to be charged in order to raise some revenue or achieve some reduction in the excess demand that may occur when services are provided completely free, but they are not intended to eliminate such excess demand. Once a decision has been taken on administrative, social or political grounds about the total amount of a particular non-market good or service to be supplied, its price is deliberately fixed well below the equilibrium price that would clear the market. The difference between a price that is not economically significant and a zero price is, therefore, a matter of degree. The price merely deters those units whose demands are the least pressing without greatly reducing the total level of demand. |
| 6.51. | The value of the non-market output of a producer (other than output produced for own final use) is given by the sum of the values of the following items for the period in question:
(a) The total value of goods and services supplied free, or at prices that are not economically significant, to other institutional units, either individually or collectively;
(b) The total value of goods or services supplied by one establishment to another belonging to the same non-market producer to be used as intermediate inputs;
(c) The total value of changes in inventories of finished goods and work-in-progress intended for one or another of the above uses.
As prices that are not economically significant may reflect neither relative production costs nor relative consumer preferences, they do not provide a suitable basis for valuing the outputs of goods or services concerned. The non-market output of goods or services sold at these prices is, therefore, valued in the same way as goods or services provided free, i.e., by their costs of production. Part of this output is purchased by households, the remainder constituting final consumption expenditures by government units or NPISHs. |
Market, own account and other non-market producers
| 6.52. | A market producer is an establishment or enterprise all or most of whose output is marketed. It is perfectly possible for market producers, both small unincorporated enterprises and large corporations, to have some non-market output in the form of production for own final consumption or gross fixed capital formation. Own-account producers consist of establishments engaged in gross fixed capital formation for the enterprises of which they form part or unincorporated enterprises owned by households all or most of whose output is intended for final consumption or gross fixed capital formation by those households: for example, owner-occupiers or subsistence farmers who sell none, or only a small fraction, of their output. Other non-market producers consist of establishments owned by government units or NPISHs that supply goods or services free, or at prices that are not economically significant, to households or the community as a whole. These producers may also have some sales of secondary market output whose prices are intended to cover their costs or earn a surplus: for example, sales of reproductions by non-market museums. |
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