Chapter 3 COST ESTIMATION Estimation of Total Product Cost Project cost estimation --- (1) estimation of TCI (2)

2) estimation of Total Product Cost Total Product Cost --- costs for operating the plant and selling the product Total Product Cost--- (1) Manufacturing Cost & (2) General Expenses Manufacturing Costs --- also known as Operating cost or Production cost; further sub-divided by interpreting Direct & Indirect costs Also requires high accuracy as like TCI; hence all elements under it should be properly known Following is typical checklist (to be considered for total product cost) for general chemical plant---Total Product Cost: (A) Manufacturing Costs (B) General Expenses; (A)Manufacturing Costs Expenses directly connected with manufacturing operation or physical equipment of process plant (1) Direct Production Costs (2) Fixed Charges (3) Plant Overhead Costs
1 Compiled by Prof. Prasad Parulekar

(B) General Expenses Expenses in addition to manufacturing cost (1) Administrative Expenses (2) Distribution & Marketing Expenses (3) Research & development Expenses (4) Financing Expenses (5) Gross Earning Expenses (A-1) Direct Production Costs: Expenses directly related to manufacturing process; vary with changes in operating specifications or conditions Have an element of fixed cost in them e.g. cost for maintenance & repairsdecreases with production level but not directlyas it continues even though plant is shut down (i) Raw Material (ii) Operating Labor (iii) Operating Supervision (iv) Steam (v) Electricity (vi) Fuel (vii) Refrigeration (viii) Water (ix) Maintenance & Repair (x) Operating Supplies (xi) Laboratory Charges (xii) Royalties (xiii) Catalyst & Solvents (A-2) Fixed Charges: Expenses remaining practically constant & not varying widely with changes in production rate

Compiled by Prof. Prasad Parulekar

(i) Depreciation (ii) Taxes (property) (iii) Insurance (iv) Rent (A-3) Plant Overhead Costs: Similar to fixed charges i.e. do not vary widely with changes in production rate (i) Medical & hospital serivces (ii) Safety & protection (iii) General plant maintenance overhead (iv) Payroll Overhead including pensions (v) Packaging (vi) Restaurant (vii) Recreation (viii) Salvage (ix) Control laboratories (x) Plant Superintendence (xi) Storage Facilities (xii) Vacation allowances (xiii) Social security (xiv) Special employee-benefits (B-1) Administrative Expenses: (i) Executive Salaries (ii) Clerical Wages (iii) Engineering & Legal Costs (iv) Office Maintenance (v) Communications (B-2) Distribution & Marketing Expenses: (i) Sales Office (ii) Salesman Expenses (iii) Material handling (shipping, containers) (iv) Advertising (v) Technical Sales Service (B-3) Research & Development expenses Occurs for companies willing to remain in competitive industrial position
3 Compiled by Prof. Prasad Parulekar

 Costs for salaries, wages, special equipments, research facilities, consultant fees related to develop new ideas or process improvements (B-4) Financing Expenses Extra cost involved in procuring money necessary for capital investment Interest on borrowed money Sometimes listed under fixed charges (B-5) Gross Earning Expenses Based on Income Tax laws Direct function of gross earnings made by company Taxes on net profits Considered as special type of general expenses Total Product Costs--- calculated on 3 basis (i) Daily basis (ii) Unit of Product basis (iii) Annual basis Annual basis (Best basis)Because--(i) Plant on-stream time or equipment operating factor is considered (ii) Effect of seasonal variation is smoothed out (iii) Permits more-rapid calculation of operating costs at less than full capacity (iv) Provides convenient way of considering infrequently occurring but large expenses such as annual turnaround costs for refineries
4 Compiled by Prof. Prasad Parulekar

 For estimation, existing data from similar type of projects is best source of various prices; extensive data gives quick & reliable estimate

(A-1) Direct Production Costs: (1) Raw material Costs: One of the major element of production cost Amount per unit time or per unit product to be determined from MB Amount of it actually consumed should be considered ( & not certain raw material as agent of production, being recovered to some stage of process) Prices referred from quotations from suppliers or market prices published in journals like Chemical Transportation costs has to be considered (depends upon form in which it is to be purchased) Bulk shipments cheaper compared to smaller container shipment; but requires large inventory In general chemical plants --- cost is 10 50% of total product cost (may vary based on plant type) (2) Operating Labor: Skilled and Unskilled Labors
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Marketing Reporter

 Wage rates vary from industry to industry, location to location For chemical processes-15% of total product cost Quantity of operating labor evaluate from past records of similar type project Relationship between labor requirement & production rate not always linear; 0.2 or 0.25 power of capacity ratio, when scaling up or down the plant capacity; requirement analysed from work to be done Type & arrangement of equipments, multiplicity of units, amount of instrumentation & control, company policy in establishing labor requirement have to be considered Table-21 (CH-6, Timmerhaus): Typical Labor Requirement for Chemical process Equipments Type of Equipment Rotary dryer Spray dryer Tray dryer Centrifugal separator Mechanical crystallizer Vacuum filter Evaporator Batch rector Continuous reactor
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Workers per unit per shift 1 - 1/6 1/8 1

Compiled by Prof. Prasad Parulekar

Steam plant (1,00,000 lb/hr)

Another method to get labor requirement---for fixed plant capacityno. of employee-hours per ton of product per step is obtained (from fig. 6-8, CH-6 Timmerhaus), & multiplied by no. of process steps

Compiled by Prof. Prasad Parulekar