9609 · 4.1.1
Practice and worked examples for 9609 The transformational process. Short previews only — attempt the full question in MarkScheme against the official scheme.
Bakery buys flour, sugar, and packaging for $2 per loaf. Sells loaves for $5. Calculate value added per loaf and explain what it must cover.
Value added = 2 = $3 per loaf.
This $3 must cover:
If energy costs rise, value added unchanged but profit squeezed unless price rises — link to 5.4 costing and 5.3 cash flow.
Elegant Chairs Ltd manufactures and sells high-end office chairs. In the last financial year, it sold 5,000 chairs at a price of $450 each. The cost of bought-in raw materials (leather, steel) was $150 per chair, and specialised components (lumbar support mechanism) cost an additional $50 per chair. Total annual operating costs, excluding bought-in materials and components, were $1,100,000.
Step 1: Calculate the cost of bought-in inputs per chair. This is the sum of all external materials and components.
Step 2: Calculate the value added per chair. Value Added = Selling Price - Cost of bought-in inputs
Step 3: Calculate the total value added for the year. Total Value Added = Value added per chair × Number of units sold
Step 4: Calculate the annual profit. Profit is what remains from the value added after all other operating costs (labour, rent, marketing etc.) have been paid.
This example shows that the $1,250,000 of value added was used to cover $1,100,000 of internal costs and generate $150,000 in profit.