Manufacturing Sector in Australia-Free-Samples for Students

Question: Discuss about the Cost of Production in Manufacturing Industry. Answer: Introduction Cost of Production also known as Production Cost refers to costs, which are incurred by a manufacturer in the manufacture or production of the goods. It comprises of various expenses, which includes, but not restricted to, raw materials, labor, consumables and other general overheads. These costs can be classified as Fixed Costs and changeable Costs. Fixed Costs refers to the costs that are incurred in spite of the manufacturing process (Shepherd, 2015). Whereas, the Variable Costs are costs, which would be incurred only when the manufacturing activities take place. The report focuses on the cost of production in manufacturing industry in Australia. It highlights the causes of such costs and the means by which it can be reduced. Manufacturing Sector in Australia In recent times, the manufacturing facilities in the Australia have been on a declining trend as their share in the economy has declined in the last 30 years. It is presently accounting for about 7% of the total production and employment (rba.gov.au, 2017). This is due to an increase in the supply from economies like China which is having lower labor cost. During the mid 2000s, a boost in the demand for the Australian made commodities helped to raise the valuation of Australian Dollars. The rate of exchange is so high that it put additional pressure on the manufacturers, further adding to the already pressurized manufacturers from the structural changes in the industry. Breaking Down of Costs The Business Costs can be broken down in a number of different ways (industry.gov.au, 2017). They are as follows- Labor Costs- This cost includes all the employee payments and social contributions. Rent Facility Charges- This includes the payments made by the property owners for using the building and other structures. Interest and Debt Charges- This implies the cost of the capital, which is determined using the interest rates. Transportation- This includes costs for the transportation of goods by road, rail, pipeline, water or air. Utilities- This includes charges for the provision of the electricity, gas and water. Taxes- This comprises of aggregate of the company and the insurance taxes. Manufacturing in Australia The manufacturing output in Australia has seen a steady increase throughout the 1990s before slowing down in the beginning of the early 2000s. The level of output between the current time and a decade ago is similar. This is given in Graph 1 below. Over the last two decades, the Australian Economy has grown rapidly resulting in a marked decline in the manufacturing output in the share of total output. Level of employment has also declined in the last 2 decades, with growth in labor output in line with that of the economy. (Graph 1: Manufacturing Indicators, Source: rba.gov.au, 2017) Though these trends have been apparent for a few decades, the time period after the global crisis has been characterized by the comparatively slower growth of global manufacturing sector, a more obvious easing in productivity growth and fall in employment in the sector. The manufacturing sector in Australia is quite diversified with having various large industries such as food, beverage and tobacco, machinery and equipment, coal chemicals and metal products, this has been shown in graph 2 below. (Graph 2: Manufacturing Output. Source: rba.gov.au, 2017) The ABSs input output tables provide some light into the organization of these sub-industries (Table1). Amongst the four major sub-industries, two major industry types emerge. The food, beverage tobacco and metal products sub industries both rely heavily on inputs from the primary industries (agriculture and mining) where Australia has an adequate supply. Only a low share of items is being imported. On the other hand, the machinery and petroleum, coal and chemical sub industries use comparatively less inputs from primary industries in Australia. They constitute of more imported items compared to others. They are vulnerable to intense competition due to imports and their final products are targeted primarily to the domestic market. (Table 1: Characteristics of Australian Manufacturing. Source: rba.gov.au, 2017) The ratio proportion of value being added to the total production in the Australian manufacturing industry is largely comparable to that in other advanced economies manufacturing industries (Table 2). (Table 2: Manufacturing Value-added Share of Production. Source: rba.gov.au, 2017) Compared to other Australian Industries, manufacturing industry is a low revenue generating sector; the ratio of value generated to the total production (29%) is the lowest of any industry. Difficulties Integrating in Supply Chains Another factor that has a contribution on the growth of the manufacturing industry is the economys amalgamation with the global supply chains. The recent data on the global supply chains suggest that economies of other countries integrated themselves with the global supply chain to counter the issue with the inferiors and imported goods. The geographical location of Australia is further contributing to the enhanced cost associated to trade and posing a major barrier in larger participation in global supply chains. Moreover, the higher trade cost associated with Australia is posing a challenge to the domestic producers being only having the comparatively small domestic market. They are unable to have the benefit from the economies of scale which can be achieved from lager market and demand. Conclusion The depreciation and devaluation of the Australian Dollar in the recent years has enhanced the competitiveness of the Australian manufacturing industry. Moreover, it is likely to have a consistent growth in the food, beverages and tobacco sectors due to the fact that the export rate increase for the Australian products along with their relative advantages in their primary resources. Compared to this, less demand from the mining industry and the adverse effect on the production of passenger vehicle will negatively affect the rate of output. However, the current rate of production for automobiles and associated equipments only contributes to around 5% of the total manufacturing output. Moreover, in the long term, the lack of infrastructure will further negatively affect the production of the manufacturing industry. The global reduction of the price of manufactured items along with the high valuation of the Australian currency in the time of the resource investment will further affect t he potentiality of the several Australian manufacturers with relatively structural change in the manufacturing sector. It leads to the closure and shifting of the manufacturing facilities to other economies having lower cost of production. However, there are one sector which is proving competitive advantage for the Australian economy is the RD. It is due to the reason that Australian is having huge number of well trained and skilled employees. One important factor that should be considered is lower demand of employees in the manufacturing sector due to their diminishing operations Bibliography Buckley, P. J., Casson, M. (2016).The future of the multinational enterprise. Springer. DRURY, C. M. (2013).Management and cost accounting. Springer. Dunning, J. H. (2012).International Production and the Multinational Enterprise (RLE International Business). Routledge. Fre, R., Primont, D. (2012).Multi-output production and duality: theory and applications. Springer Science Business Media. Ham, I., Hitomi, K., Yoshida, T. (2012).Group technology: applications to production management. Springer Science Business Media. industry.gov.au. (2017). Retrieved 7 August 2017, from https://industry.gov.au/Office-of-the-Chief-Economist/Publications/AustralianIndustryReport/assets/Australian-Industry-Report-2016-Chapter-3.pdf Nicholson, W., Snyder, C. (2014).Microeconomic theory. . rba.gov.au. (2017). Retrieved 7 August 2017, from https://www.rba.gov.au/publications/bulletin/2016/jun/pdf/bu-0616-4.pdf Shephard, R. W. (2012).Cost and production functions(Vol. 194). Springer Science Business Media. Shepherd, R. W. (2015).Theory of cost and production functions. Princeton University Press.