Chapter 3 COST ESTIMATION
Computerized controls, long distance control arrangements--arrangements--- less labor requires For Fluid-processing plant: (e.g. ethylene oxide plant)--- 1/3 to 2 employee hours per ton product For plant: (e.g. Solid-Fluid-processing polyethylene plant)--- 2 to 4 employee hours per ton product For Solid-processing plant: (e.g. coal briquetting plant)--- 4 to 8 employee hours per ton product Labor cost---depends on – type of worker, plant’s geographical location, prevailing wage rates, worker’s productivity productivity Table-22 (CH-6, Timmerhaus): Operating labor, fuel, steam, power & water requirement for various processes based on capacity Table-23 (CH-6, Timmerhaus): Costs for selected utilities and labor Table-24 (CH-6, Timmerhaus): Engineering news record labor index
(3) Direct supervisory & Clerical Labor: Requirement closely relates to amount of operating labor, complexity of operation, product quality standards
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15% of operating labor cost
(4) Utilities Cost: Steam, processing & cooling water, compressed air, fuel, electricity, N2, natural gas, etc. Cost varies as per, amount of consumption, plant location, source Cost estimation---based on preliminary preliminary design Purchased or produced in company Produced by company, used for only 1 process--service cost charges as manufacturing manufacturing cost Produced by company, used by different processes, service cost apportioned among different processes based upon individual consumption Steam---consumed by manufacturing process & for auxiliary needs Electricity for lighting, motors, process — for equipments Consider allowances for radiation and other line losses
(5) Maintenance & Repairs: For efficient operation of plant Expenses — labor, labor, material, supervision supervision 2 – 20% of equipment cost depending upon light or severe service operations For buildings — 3 - 4% of building cost Annual average average cost – 6% of FCI
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For operating rates less than plant capacity--Costs are 85% of that of 100% capacity for 75% operating rate Costs are 75% of that of 100% capacity for 50% operating rate Table-25 (CH-6, Timmerhaus): Estimation of maintenance & repair costs
(6) Operating Supplies: Miscellaneous materials needed to keep process functioning functioning efficiently Not the part of raw material or maintenance & repair materials e.g. charts, lubricants, test chemicals, etc 15% of total cost for maintenance & repair
(7) Laboratory Charges: Laboratory test for control over operation & product quality 10-20% of operating labor costs
(8) Patent & Royalties: Processes covered by patents To pay for patent rights, royalties based on amount of material produced For development and procurement of patent rights 0-6% of total product cost (royalties — vary with type of product & industry)
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(9) Catalyst & Solvents: Depends upon specific selected
manufacturing
process
(A-2) Fixed Charges: (1) Depreciation: For equipments, buildings & other material objects Invested at starting only Expenses for these should be written of as an manufacturing manufacturing expenses Different methods available for calculation For machineries and equipments--- annually 10% of FCI For buildings--- annually 3% of initial cost of buildings
(2) Local Taxes: Depends on plant locality & regional laws For highly populated areas--- annual property taxes --- 2 - 4 % of FCI For less populated areas--- 1 - 2% of FCI
(3) Insurance: Rates depends upon type of process & extent of availability of protection facilities Annually – – 1% of FCI
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(4) Rent: For rented land & buildings 8 – 12% of value of rented property
(A-3) Plant Overhead Costs: Costs not directly related to production Non-manufacturing machineries, equipments, buildings, etc. Costs--- closely related to costs of labor directly connected with production operation For general chemical plant--- 50 – 70% of total expenses for operating labor, supervision & maintenance
(B-1) Administrative Costs: Expenses connected with top management or administrative activities Salaries & wages to administrators, secretaries, accountants, stenographers, typists & similar workers; Costs for office supplies; outside communications, administrative buildings 20 – 30% of operating labor
(B-2) Distribution & Marketing: Should be good for success of manufacturing operation Salaries, wages, supplies to sales office + salaries, commissions, travelling expenses for salesman +
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shipping charges + container’s costs + advertising + technical sales service Cost — depends upon, type of product, other products — depends of companies, location, company policies 2 – 20% of total product cost More for new product or products sold in small quantities to large no. of customers; Low costs for Large volume products such as bulk chemicals
(B-3) Research & Development Costs: For developing new methods & products 2 – 5% of every sales
(B-4) Financing Costs: Interests on borrowed capital (though interest rates are fixed, not considered as fixed charges) Annual interest rates – 5 – 10% of total borrowed capital Investment done directly from company’s existing funds — to to or not to charge interest on it as cost? (depends upon company policies) For income tax calculations--- interest on owned capital --- not charged as cost
(B-5) Gross Earning Expenses: Gross Earning = (Total Income) – (Total Production cost) Net profit profit < gross earning (income tax charged on gross earning)
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