5.0 Cos Costt est estim imati ation on
Number of working days per year Cost of 1000 kg of acrylo nit rile Production of acrylo nitrile Gross sale for 1 year or total inco me
= = = = =
,
300.00 85,000.00 100,000.00 8,50,00,00,000.00 8,50,00,00,000.00
`
ton ` `
Turn Over Ratio
It is defined as the rat io of total income to the t he fixed capital investment
i.e., TOR
For process industries turnover ratio is 1, thus, Fixed Capital Investment (F (FCI) = Gross annual sales
=
Total Income Fixed Capital Investment
=
8,50,00,00,000.00
`
= =
5,95,00,00,000.00 88, 06,24025.00
`
35% 6% 9% 10% 9% 7% 4% 20%
2,08,25,00,000.00 35,70,00,000.00 53,55,00,000.00 59,50,00,000.00 53,55,00,000.00 41,65,00,000.00 23,80,00,000.00 1,19,00,00,000.00
100%
5,95,00,00,000.00
`
= i.e .e., .,
2,55,00,00,000.00 2,55,00,00,000.0 .00 0
`
But, Fixed Capital Investment = Direct cost + Indirect Cost 5.1.1 Dire Direct ct Cost Cost
Direct co cost is is taken as 70% of fi fixed capital in investment
The cost involved are , i. Equipment cost ii. Installat ion and piping cost iii. Instrumentation cost iv. Electrical cost v. Piping cost vi. Building, process and auxiliary cost vii. Service fa faciliti tiees an and ya yard im improvement co cost vii. Land cost Total
`
5.1.2 5.1 .2 Ind Indire irect ct cos costt
Indirect co cost = Fixed Ca Capit al Invest ment - Direct Co Cost
`
Indirect cost consists of foll following owing items, 34
i. ii. iii. i.
Engineering and supervision cost Contingency Working capital Engineering and supervision cost. i.e, 6% of direct cost
=
35,70,00,000.00
i.e,
35,70,00,000.00
`
= i.e,
11,90,00,000.00 11,90,00,000.00
`
=
1,30,90,00,000.00 1,30,90,000.00
`
=
1,78,50,00,000.00
`
i.e.,
1,78,50,00,000.00
`
Therefore, total working capital = fixed capital + working capital = i.e.,
9,80,90,00,000.00 9,80,90,00,000.00
`
= = i.e.,
8,50,00,00,000.00 85,00,00,000.00 85,00,00,000.00
`
= i.e.,
7,65,00,00,000.00 7,65,00,00,000.00
`
=
4,59,00,00,000.00
`
It is 5% of toal product cost
=
38,25,00,000.00
`
Operating labour cost It can be taken as 15% of total product cost
=
1,14,75,00,000.00
`
=
7,14,00,000.00
`
ii.
iii.
Contingency is 2% of direct cost
Working capital is 22% of direct cost Total
,
`
5.1.3 Estimation of total product cost
Total Annual income Gross earning is 10% of annual income
Product cost = Total annula income - Gross earnings
` `
`
Direct production Cost
It can be taken as 60% of total product cost Raw materials cost
Direct supervisory and clinical labour cost
It is 20% of operating labour cost
35
Utilities It can be taken as 10% of total product cost
=
76,50,00,000.00
`
= =
8,50,00,00,000.00 30,60,00,000.00
`
= =
35,70,00,000.00 2,39,19,000.00
`
= =
8,50,00,00,000.00 12,75,00,000.00
`
=
76,50,00,000.00
`
Maintenance and repair cost
It is 3.6% of fixed capital investment cost
`
Laboratory Charges
It is taken as 6.7% of operating labour cost
`
Royalities
It can be taken as 1.5% of fixed capital cost
`
Fixed Charges
It can be taken as 10% of product cost Plant overheads
This includes the cost of general house packaging, medical services, safety and protection recreation, sewage, laboratories and storage facilities =
38,25,00,000.00
`
= =
8,50,00,00,000.00 85,00,00,000.00
`
1,19,00,00,000.00 3,57,00,000.00 88,57,00,000.00
`
Total depreciation value is 13%
= = =
Depreciable capital investment is
=
88,57,00,000.00
`
= =
8,50,00,00,000.00 8,50,00,000.00
`
It is 5% of total product cost Depreciation
Depreciation for machinery is 10% of fixed capital cost
Depreciation of building is 3% of the land cost
`
` `
Insurance
It is 1% of the fixed capital cost
` 36
Rent value It is 2% of the total product cost
=
15,30,00,000.00
`
General expenses
Administrative cost includes cost of officers, legal fees, office supplier and communications. It is 4% of the total product cost
=
30,60,00,000.00
`
=
45,90,00,000.00
`
=
7,65,00,000.00
`
=
15,30,00,000.00
`
= =
8,50,00,00,000.00 3,40,00,00,000.00
`
Distribution and selling cost
It accounts for 6% of total product cost Research and development cost
It is 1% of total product cost Financing
It is 2% of the total product cost Net Profit
It is obtained after deduction of taxes from t he gross earnings. Net Profit is 40% of gross earnings
`
5.1.4 Determination of Pay-Back Period
Pay-back period
=
Pay-back period
=
Depreciable fixed capital investment (Average profit + Average depreciation) 1 1
year
37
