Math focus: calculating value added per employee by Dawn Weeden
Financial performance indicators are used by management to measure the effectiveness Barnard of both the organisation and its staff. For Unit 9: Contributing to the Planning and Control of Resources and Unit 33: Management Accounting, you may be required to calculate various performance indicators. One of these is ‘value added per employee’.
What maths do you need?
You will need to be able to add, subtract and divide.
What do you need to learn?
The term ‘value added’ describes the difference between the value of sales (outputs) of an organisation and the external costs (inputs) that have been incurred in generating those sales. This performance indicator measures the impact that internal resources, such as employees and asset utilisation, have had on increasing the value of the inputs. It is usually calculated as an amount per employee.
Value added per employee is calculated as ‘outputs less external inputs divided by number of employees’, or:
Sales - (cost of materials + bought-in services)
Number of employees
An example
A company has 30 employees. For the year ended 31 March 2008, sales were £687,000 and materials cost £184,000. In addition, the company paid wages of £225,000 and bought in services at a cost of £83,000. Calculate the value added per employee for the year ended 31 March 2008. It’s important to remember that we are concerned with the value that employees have added to the external costs, so the wages figure is not included in the calculation. The value of inputs can be calculated first by adding the costs for materials and bought-in services:
£184,000 + £83,000 = £267,000
The value added by the employees is the difference between sales (outputs) and the value of inputs:
£687,000 - £267,000 = £420,000
Once we have the value added figure, it can simply be divided by the number of employees to calculate the value added per employee:
£420,000 / 30 = £14,000
Now you try
Jackson Ltd has 45 employees. For the year ended 31 March 2008, sales were £670,000 and materials cost £384,500. In addition, the company paid wages of £360,000 and bought in services at a cost of £128,000. Calculate the value added per employee for the year ended 31 March 2008.
Accounting Technician - May 2008 - Page 27
