of scale. Capacity, or rather,
unusedcapacity is
anot
her
,whilst overtime, speeding up tactics, shift wo
rk, contract
labour
andpart-time employment all cause a blurring of
any distinctionof the
twotypes.
Direct proces s labour tends to be variable but with definite
fixed elements whi ch include unproductive time, and that labour errq:>loyed in the preparation of any process or operation. Bearing in mind the fact that clearcut distinctions are not possible , for the purpose of analysis the elements of wage-costs will be segregated as fol lows :-
Fixed labour costs
Func tional elements of cleaning, preparation, administration and unproductive time
in
all process es.The fUnctional wage-costs for refrigeration, power and. steam.
V
The operational elements of the process costs of reception
processing, packing and genera.l0 All over-time.
FIXED VARIABIE COSTS OF BUTTER
in
lba, - Up to 2 15001000 2 ,500 ,000 to5�
5m.
to 7 ,500 , 000 Over 7 ,500 ,000 AB
c
D 473 6
30
2553
64
70 75The above figures were taken from a short-run period of one month d ring the
flush
of the season.It will be observed that variable cos ts tend to increase with scale, s o that the larger the scale , the greater tends to be the proportion of variable costs. A number of small-output factories had fixed costs amount ing to a l ittle more than one-half of total costs.
There is a distinct relationship between aggregate unit wage costs as a function of scale and the ratio of fixed to variable costs
( Fixed costs )
Variable costs • In Class
A,
the average unit wage cost is 0. 80d. and the cost ratio89}6;
in ClassB
the unit cost iso.46d.
and the ratio5 6%;
in Class C the unit· cost is 0.41 d. and the ratio 4�; and in Class D thenit cost is 0.35. £. and the ratio 33% respectively.
It would appear that variable costs as a component of total cos ts ,
costs become a smaller percentage of total costs as production increases. .
( Fixed costs ) ThJ.S cost coefficient V
i bl t diminishes with scal e , and ar a e cos s
reveals a markeid col7!!spondence with the diminishing total unit wage cost, which decreases with increase in scale . In fac t , when individual oases
were examined , especially high output units where unit wage costs were
ve� low relatively, a correspondingly low c ost coefficient was observed. In small fa.ctories , however, where unit wage costs were high, the cost
coefficient was also high, but the correspondence was less marked. That is , with low output units , the di�persion of the cost coefficients tended to be moderate , but this dispersion tended to diminish with increase in so ale.
One reason for this lies
in
the fact that ma.n.,y small units had a wide fluctuation from month to month, and a l'elatively very low output inthe off season. In other words, the seasonal curve o f output tends to be leptokurtic or peaked
in
distribution for small factories, whereas distrib ution tends to be meso-kurtic or flatter as output increases. Moreover,this variation
in
kurtosis in the seasonal frequency curve is a measureof the extent of unused capacity deriving from the character of seasonal
output itself.
Where a factoxy has a low monthly �mininum ratio of product ion26 the unu;-sed capacity was relatively low, the cost coefficient was low, and the aggregate wage unit cost was c orrespondingly low. Where the
montbly-output coefficient was high, the c ost---coefficient and aggregate unit wage cos t were also high. Unused capac ity is a resuit, generally, · of ia�e fac tors reflected by fixed costs in the off-season.
In addition to idle factors arising from seasonal and geographical factors , unu.�ed capaoi
ty
is caused by the heterogeneous and sporadic character of the quantity of cream rec e ived from individual suppliers .2
�
asured by the ratio : of monthOutput of lowest output month One of the lowest monthly-output coefficients recorded was
1
o.Where suppliers have small herds 1 factory wage costs are high as smaJ.l cans take longer to handle than large cans as indicated by the time motion studies . These small cream offerings are instrumental i n inten s ifying unused capa.oi ty
and
fixed costs. Even in the flush of' the season(
when the cost-coefficients were calculated)
fixed costs , and unused capacity can be intensified by the character of' the cream-offerings together with other f'actors0These other factors are l argely managerial. in character. Lack of
organised planning, inadequacy of' mechanization and excessive unproductive time all contribute to the magnitude of' fixed costs. It need sc arcely be added that average unit fixed costs relative to variable costs increase as production falls off', until in some cases where production ceases for one or two months , the costs are entirely fixed in character. Other things being equal, the magnitude of variable �osts does appear as an indicator
of efficiency and conversely, fixed costs as inefficiency.
Thus economic efficiency is apparent where an undue fixed cost ele ment of labour has been recognised and substituted by other factors , so that t otal outlay in all avenues of expenditure has been reduced.
(2)
Costs related to Two measures of efficiency arephysical input-output ratios , and unit operating costs.
The former, which deal with physical units only, are a measure of' technical efficiency 1 and if the factors examined are perfectly homogene ous and substitutable , a reliable measure is afforded because the ratios themselves remain unaffected by any change in factor price. But an hour of labour
(
the physical unit) � vary
in output due to varying capacit ies of' different individuals , or varies in the same individual due to onset of fatigue or other causes.�sioal inputs , when measured, illustrate increased technical efficiency with soale, for they demonstrate that the number of hours per unit of output tend to fall with increased volume. Some 26 factories kept sufficiently detailed records to extract the total number of man hours worked for the