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Most manufacturing operations, as is confirmed by the Office for National Statistics, (ONS) have a cost structure which clusters round about one third of charges being those for which there are world prices while two thirds are determined by local cost conditions. Typically there are world prices for raw materials and plant and machinery and locally determined prices for more or less everything else. The cost base comprises all of the charges which are incurred in the local currency. In our case, of course, this is sterling.
The cost base is made up of a very wide variety of charges – including everything from travel expenses to audit costs, from fuel bills to cleaning charges, from repair bills to postage costs, from insurance premiums to printing and stationery. It includes direct labour costs but also interest charges, rent and the need for a level of profitability. Rather more than half these charges are essentially labour costs because compensation for employment represents about 55% of our Gross Domestic Product (GDP). The remaining 45% is made up of what is received as unearned income in the form of payments for inputs such as rent, interest and dividends.
