Rate of Cost Examples

Example 1:

It is estimated that labor represents 40%-50% of copper production costs. Significant rate reductions were made during the period of Hostility, and resulted largely from Phelps Dodge's confrontation with its union in 1983. Phelps Dodge became non-union, and it was three years before Phelps Dodge's competitors were able to renegotiate labor contracts. (
Year 1983 – SIC 1021)

Explanation: Phelps Dodge succeeded in effectively changing the supplier of its labor force from a union to a non-union source. This reduced its rate of cost for its workforce.

Example 2:

While top executives at Barrick receive salaries 5-10% below the industry norm, they can qualify for lucrative stock options if the company does well. The program has already made a number of Barrick executives wealthy. Miners at Barrick can earn an extra 10% above their average annual salary of $40K if they meet monthly production quotas. (
Year 1993-SIC 1041)

Explanation: Barrick changed the components in its rate of labor cost to reduce its cost per unit produced.

Example 3:

Chocolate is still 90% of Hershey’s business. Even a surge in the spot price of cocoa won't hurt Hershey much because it has already locked in low-priced cocoa by buying forward in the futures market. (
Year 1990-2000)

Explanation: Hershey reduced its rate of cost for cocoa by changing the timing of its purchases.

Example 4:

Competitors in Texas, Idaho, Mexico and Guatemala, where labor and utility costs can run 50% less than in California, are taking share from the California packing plants. In response the California plants have unilaterally cut wages, shifted production to plants in low cost, non-union plants in the inexpensive parts of the country and world and instituted a two tier wage plan that starts new hires at lower rates than old timers. (
Year 1985-SIC 2038)

Explanation: Competitors in Texas, Idaho, Mexico and Guatemala had low cost sources of purchases for their labor and utilities. The California competitors responded to these low rates of cost by changing the sources of its workforce and energy and by changing the components of the rate of labor costs.

Example 5:

Japanese make cars at about $8 or $9/hr labor cost advantage over the Big 3 U.S. manufacturers. (
Year 1992-SIC 3711)

Explanation: The Japanese had a rate of labor cost advantage due to their location. Their sources of labor were lower cost than were those of the Big 3.