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Tutorial 3: Production and costs - Week 3A. Lecture: (10 min)
- Introduction to production and added value
Assignment 1: Added value
The profit and loss statement of a steel manufacturing plant for the last year is
given below:
Sales 2,862,000
Raw Materials 732,000
Labor 804,400
Purchased services 344,800
Depreciation 667,800
EBIT 313,000
Interest cost 95,000
Taxes 54,500
Net profit 163,500
a) Calculate the gross added value of this firm by using the output approach.
[Sales - Raw Materials - Purchased services: 2,862,000 - 732,000 - 344,800
= 1,785,200]
b) Calculate the nett added value of this firm by using the output and the income
approach.
[Output app: Gross Added value - deprecation: 1,782,200 - 667,800 =
1,117,400]
[Income app: Wages + EBIT: 804,400 + 313,000 = 1,117,400]
c) Show a breakdown of the distribution of this value-added by firm stakeholders.
Labor -> Employees (wages): 804,400
Net profit -> Shareholders/owners: 163,500
Interest cost -> banks: 95,000
Taxes -> Government: 54,500
d) Calculate what percentage of the net added value will be available for the reward of
the production factor labour.
(804,,117,400)*100% = 71,9%
e) Explain that this percentage will be higher for companies in the service industry.
The services industry uses relatively more labor (than capital).
f) Explain what will happen to the gross added value of this firm if (ceteris paribus):
- Wages will go up.
[no effect: wages will grow at the expense of profit]
- The prices of raw materials will go up.
[less added value: value of purchased goods (input) will grow] -> unless
the higher prices of inputs will result in a higher price of the end product.
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