Discuss about the Cost of Production in Manufacturing Industry in Australia.
The report is on the analysis of an Australian article. The article states talks about the cost of production in Australia. The article is in an Australian website called Australian Competition and Consumer Commission. The article highlights the costs of labour in production in terms of production process and the wages per employee. There is also information about the overheads incurred in the production process in Australia. This is such as vehicle expenses, inspection of goods and storage of goods expenses (Government, 2017 ).
Cost of production
Costs of production refers to what a company incurs in the provision of goods and services (Arnold, 2015). Manufacturing costs include costs such as labour and raw material expenses. Taxes levied by the government are also included in the production costs. For a cost to qualify as a production cost, it should directly be involved in the generation of revenue for the company. Manufacturing costs include direct costs and indirect costs. Direct costs are those that are visible in the production process or in the final product. Raw material costs and machinery expenses are good examples of direct costs. Indirect costs are those cost that are not clearly visible in the production process or in the final output. Overheads such as rent and administrative expenses are good examples of these costs. Manufacturing costs are important because they assist in coming up with the prices for final products in the market.
Parties interested in the information
The article is important to various parties within the economy. The government is one of the parties concerned about cost of production. The government has a duty to the citizens to ensure the cost of production within the country stays at the lowest level possible. The government thus follows up the costs to identify when they are high than expected or very low than needed. Policies put in place to reduce the costs of production such as the provision of subsidies. This are grants by the government to producers to reduce the costs that they incur in production. The government additionally reduces production taxes levied on the producers to reduce their expenses for production.
In addition to that, investors are concerned about costs of production. They need to know how much they will incur when they set up industries in Australia. The investors need to know all the costs that the industrial laws of Australia charges on production. The production costs when maintained at low levels encourages more investors to the economy. This way the production sector develops at a high rate.
(Burda, July 25, 2017)
Economic concepts and theories
The costs of production in Australia are very high. The country has a trend of increasing cost of production yearly. This is a result of high labour costs where the salaries are very high than the companies can pay. The labour costs form a large part of production costs and thus when high the cost of production increases. The high production cost problem has affected industries such as the car manufacturing industry. High costs of production led to the collapse of the company. This is because of the effects of increased production costs causing the company to make losses continuously. The government should reduce production costs for this sector to ensure that they continue operating (Jones, 2017).
Production taxes are another concept in cost of production (Lee Coppock, 2017). The Australian government charges high taxes to the production companies. This as a result increases the company’s costs of production. High taxes in Australia production sector has resulted to companies reducing the number of employees in their companies. Research shows that the companies have laid of most of their workers to reduce the production costs, which high taxes increase largely. The high taxes have scared away investors wanting to start-up companies in the country. There is a need to reduce the taxes in Australia so that investors can start up more companies and stop companies from laying off many workers.
Additionally there is technology, which refers to machinery used in manufacturing (Margaret Ray, 2015). Many Australia companies lag behind in adopting new technology for production. The resulting effect is a decrease in the number of products and increased cost of production due to high manual labour employment. However, the government has improved the agriculture sector where farmer use modern technology. The resulting effect is an increase in farm products as well as the farmers producing high value farm outputs.
Recommendations to the key players
Efforts aimed at reducing the costs of production to ensure that the manufacturing sector develops. Production tax reduction assists in reducing costs of production (Tucker, 2016). The government should introduce more trade zones where the government charges low or no taxes on the companies. Reduction of taxes also attract more investors. Subsidies to companies also help reduce the costs of production for the companies. Subsidies are additional money from the government to fund the operations. They reduce the amount of money that the company uses from their operations finances. Subsidies assists companies to cater for expenses and have enough revenue as profits.
In addition to that, investors should come up with policies that reduce their costs of production. Investors should ensure the employment of modern technology in production. Technology helps in reducing manual labour, which is usually expensive to the company. Modern technology produces in high quantities and quality at very low costs thus reducing the costs of production. Policies such as setting the minimum technology to employ paly a large part in ensuring that the companies use technology and consequently reduce the costs of production. Additionally the companies should use local labour, which is often cheap compared to foreign labour. This policy reduces the cost of labour incurred by the company. This in turn ensures that the revenues made by the companies are high and as a result encourage more investors to venture in production (Tyler Cowen, 2014).
Moreover, the Australian manufacturing sector should come up with methods of getting raw materials from within the country. The effect of this step is the reduction of costs of production because of cheap raw materials from within the country compared to imported raw materials. The country should empower their citizens to produce raw materials for the companies. The mining sector development ensures that the companies get cheap minerals from within the company at low costs (Williamson, 2013).
The information is important in the conclusion that Australia’s manufacturing sector is generally low. The government has a large role to play in the improving of this sector. There is the need to get resources from within the country such as labour and raw materials, which is cheaper, compared to the importation of resources.
Arnold, R. A., 2015. Macroeconomics. 12th ed. s.l.:South Western College.
Burda, M., July 25, 2017. Macroeconomics. 7th ed. s.l.:Oxford University Press.
Government, A., 2017 . Australia Competition and Consumer Commission. [Online]
Available at: https://www.accc.gov.au
[Accessed 15 August 2017].
Jones, C. I., 2017. Macroeconomics. 4th ed. s.l.:W.W. Norton & Company.
Lee , D. M., 2017. Principles of Macroeconomics. 2nd ed. s.l.:W.W.Norton & Company.
Margaret , D. A. A. K., 2015. Macroeconomics for AP. 2nd ed. s.l.:Worth Publishers.
Tucker, I. B., 2016. Macroeconomics for Today. 9th ed. s.l.:South Western College.
Tyler , A. T., 2014. Modern Principles:Macroeconomics. 3rd ed. s.l.:Worth Publisher.
Williamson, S. D., 2013. Macroeconomics. 5th ed. s.l.:Pearson.