Chapter 3 COST ESTIMATION Computerized controls, long distance control arrangements--- less labor requires For Fluid-processing plant:

t: (e.g. ethylene oxide plant)--- 1/3 to 2 employee hours per ton product For Solid-Fluid-processing plant: (e.g. 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, plants geographical location, prevailing wage rates, workers 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 design Purchased or produced in company Produced by company, used for only 1 process--service cost charges as 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 Electricityfor lighting, motors, process equipments Consider allowances for radiation and other line losses (5) Maintenance & Repairs: For efficient operation of plant Expenseslabor, material, supervision 2 20% of equipment cost depending upon light or severe service operations For buildings3 - 4% of building cost Annual 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 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 (royaltiesvary with type of product & industry)
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(9) Catalyst & Solvents: Depends upon specific selected (A-2) Fixed Charges:

manufacturing

process

(1) Depreciation: For equipments, buildings & other material objects Invested at starting only Expenses for these should be written of as an 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 + containers costs + advertising + technical sales service Costdepends upon, type of product, other products 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 companys existing fundsto 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 < gross earning (income tax charged on gross earning)
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Compiled by Prof. Prasad Parulekar