Components of the cost of production, Strategic Management

Components of the cost of production

Any sustained rise in input prices usually lead to an increase in productprices through the cascading effect. The major components of the costs of production of finished steel are:
• Raw materials - Raw material costs forms roughly about 62% of the total cost of production. This only emphasizes on how important sharpmovements in raw material prices mean for the steel industry. Thebasic raw materials that are used in producing steel are iron ore, coaland limestone. India is fortunate to be endowed with one of the largestiron ore deposits in the world. Limestone is also available in sufficientquantities and as such do not pose much of a problem. India alsopossesses one of the biggest coal deposits (approximately 197 bntonnes) in the world. However, Indian coal is mostly unfit for cokeproduction because of its high ash content of 25-40%. Coal fit for cokeproduction comprises less than 15% of total reserves. As such, Indiansteel giants have to resort to importing coking coal from foreign

Power costs - The steel industry is an energy intensive industry with Power and fuel contributing as much as 10.1% of total production costs. It has been estimated that the global steel industry account fornearly 4% of the total energy consumption in the world. Most steelmajors like SAIL, TSL and JSW have captive power plants but smallerplayers have to depend on outside supply. As such, erratic supply formsa major obstacle for growth of these producers.

• Interest payments - Steel is a capital-intensive industry and as such many companies resort to outside borrowings, mostly in form of long-term loans. Interest payments always used to form on averagebetween 7 - 9% of the total costs but have recently come down to aslow as 3.2%. Interest coverage ratio has also shot up to nearly 10 afterhovering above the zero levels for a number of years. Also, it is important to note that the recent good turn in the sector has enabledmany companies to pay off their long-term debts early and, in general interest payments have come down industry-wide.

Taxes and duties - Excise duties, sales tax, other direct and indirect taxes further push up costs in the steel sector. Total taxes contribute more than 16% of total costs. Here, the government can play an active role and provide structured concessions for new and old capacities.

• Other expenses - Wage bills, depreciation costs and distribution expenses are among the other major cost components.

Posted Date: 3/25/2013 4:13:28 AM | Location : United States

Related Discussions:- Components of the cost of production, Assignment Help, Ask Question on Components of the cost of production, Get Answer, Expert's Help, Components of the cost of production Discussions

Write discussion on Components of the cost of production
Your posts are moderated
Related Questions
A good strategic plan is a dominant motivator for change and usual progress updates are crucial to maintain that momentum. The next steps then are to regularly ensure in on progres

Undertake the following tasks : 1. Develop a position paper for enhancing the organisation's strategic capability by influencing the strategy in action. 2. Evaluate the organ

Q. Illustrate about Value for money framework? The value for money (VFM) framework (the 3Es)  Economy (Cheap) e.g. is the organisation procuring resources at the lowe

Review trends in the general environment that affect the movie exhibition business, and establish whether their effects are helpful or harmful to theater owners.

Administration controls are performance measurement systems e.g. Management accounting 'exceptionreporting' systems which compare actual performance to a predetermined target, goal

A paper mill produces two grades of paper viz., X and Y. Because of raw material restrictions, it cannot produce more than 400 tons of grade X paper and 300 tons of grade Y paper

Ask question #Minimum 100 words accepted What is the value of studying the humanities in a business or technical curriculum? How might a topic such as ancient art enhance contempor

market barriers

Using examples, explain the differences between the primary and secondary markets for securities. Question Discuss systemic risk and any effects that it might have on investo

1.1 Describe the importance of external factors affecting an organization. 1.2 Examine the requires and expectation of stakeholders of an organization. 1.3 Examine the main chang