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Sem 5 Prep
← OperationsWhat operations management is

Formulas for this chapter

Value added

Value added = Value of outputs - Cost of inputs

Any time you are asked what a transformation process is worth. Take every input the process consumed, including labour.

Value of outputs
Units produced x selling price, or the amount billed
Cost of inputs
Materials, labour, energy and facility charges consumed

Value added per unit

Value added per unit = Value added / Units produced

To compare two days, two shifts or two plants fairly, because it removes the effect of how busy the period was.

Value added
Output value minus input cost, for the period
Units produced
Good output for the same period
Step 3 of 27
The real wordsTheory

Two kinds of input

The professors split the input box in two, and the exam expects both halves.

Consumable inputsUsed up in the process: raw material, and the cost of buying it.
Non-consumable inputsNot used up, and often not on the balance sheet: human capital (skills), intellectual capital (knowledge and innovation), social capital (networks and trust), and reputation, brand equity and customer loyalty.

Steel is consumed making a car. The welder's skill is not. Both went in.

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