Cost Estimation

Cost of the plant

Cost of cumene plant of capacity 100 Million pound TPA in 1990 is Rs.

58000000

Therefore cost of 800 TPA in 1990 is:

0.6
C1 = C2 (Q1/Q2)^ 0.6 = 580000000 x (800/100) = Rs. 3060000000

Chemical Engineering Plant Cost Index: Cost index in 1990 = 357.6

Cost index in 2015 = 560.7 (James R. Couper, 2003)

Thus, Present cost of Plant = (original cost) ( (present cost index)/(past cost index))^0.6

0.6
= (3060000000) (560.7/357.6)
= Rs. 4009000000

i.e., Fixed Capital Cost (FCI) = Rs 4009000000

Cost of Equipment: (Robert H. Perry, 1997)

Table 7.1

Number Equipment Capacity/power Total Cost (Rs.)

(range)

15 Pumps 1-22 kW 9000000

1 Fired Heater 2800kW 1500000

3
6 Reactor 6.5m 120989900

2
15 Heat exchanger equipment* 20- 400m 7985734

2
4 Flash Drums 4-6 m 450000

3
2 Storage tank 450m 5000000

2 columns 8000 gallon 56900400

3 Conveyer Belt 10 m2 800000

2 Crystalizer 5.5 m3 1200000

2
0
 Purchased equipment cost(PEC) =Rs. 947000000

Estimation of Capital Investment Cost:

I. Direct Costs: material and labour involved in actual installation of complete facility (70-85% of fixed-
capital investment)

a) Equipment + installation + instrumentation + piping + electrical + insulation + painting (50- 60% of

Fixed-capital investment)

1. Purchased equipment cost (PEC):

PEC = 25% of Rs 4009000000 ~= 947000000

2
0
 2. Installation, including insulation and painting:

Installation cost = 40% of Purchased equipment cost = 40% of 947000000 = Rs 378000000

3. Instrumentation and controls, installed:

Installation cost = 20% of Purchased equipment cost = 0.20 947000000= Rs 189400000

4. Piping installed:

Piping Cost= 40% of Purchased equipment cost = Rs 378000000

5. Electrical, installed:

Electrical cost = 25% of Purchased equipment cost = 0.25 = Rs 236750000

B. Buildings, process and Auxiliary:

Buildings, process and auxiliary cost = 40% of PEC = 0.40 947000000= Rs 378000000

C. Service facilities and yard improvements: = 60% of 947000000 = Rs 568200000

D. Land:

Cost of land = 6% PEC = 0.06 947000000= Rs 56820000

Thus, Direct cost = Rs 790000000----- (82%of FCI)

II. Indirect costs: Expenses which are not directly involved with material and labour of actual
installation of complete facility (15-30% of Fixed-capital investment)

A. Engineering and Supervision:

Cost of engineering and supervision = 10% of Direct costs
= 10% of 790000000 = Rs 79000000

B. Construction Expense and Contractors fee: = 10% of Direct costs

= 10% of 790000000 = Rs79000000

C. Contingency: = 10% of Fixed-capital investment Contingency

cost = 0.1 947000000 = Rs 94700000
 Thus, Indirect Costs = Rs 1042340000 --- (26.75% of FCI)

III. Fixed Capital Investment:

Fixed capital investment = Direct costs + Indirect costs

= (Rs790000000) + (Rs1042340000)

IV. Fixed capital investm Working Capital:

Working Capital = 15% of Fixed-capital investment

= 0.15 4009000000= Rs 601000000

V. Total Capital Investment (TCI):

Total capital investment = Fixed capital investment + Working capital

= (4009000000) + (601000000)
Total capital investment = Rs 4610000000

Estimation of Total Production cost:

1. Manufacturing Cost
= Direct production cost + Fixed charges + Plant overhead cost.

A. Fixed Charges: (10-20% total product cost)

i. Depreciation: (13% of FCI for machinery and equipment and 2-3% for Building Value for
Buildings)
Depreciation = (0.134009000000) + (0.034009000000) = Rs 641440000

ii. Local Taxes:

Local taxes = 3% of fixed capital investment
Local Taxes = Rs0.03*4610000000=138300000
 iii. Insurances:
Insurance = 0.0074610000000= Rs 322700000

Thus, Fixed Charges = Rs 1105100000

D. Direct Production Cost: (about 60% of total product cost)

Fixed charges = 15% of total product cost

Total product charge =1105100000 /0.15

Total product charge(TPC) = Rs 7367300000

i. Raw Materials:

Raw material cost = Rs =Rs. 174661

ii. Operating Labour (OL):

Operating labour cost = 12% of Operating

7367300000
labour cost = Rs 884076000

iii. Utilities:

Utilities cost= 0.127367300000

Utilities cost = Rs 884076000

iv. Laboratory Charges:

Laboratory charges = 1.5% of OL

 Laboratory charges = Rs 13261140

v. Patent and Royalties:

Patent and Royalties = 0.04 7367300000

Patent and Royalties cost = Rs 294600000

Thus, Direct Production Cost = Rs 3315285000 ----- (45% of TPC)

E. Plant overhead Costs

I. Plant overhead cost = 60% of Direct production cost
Plant overhead cost = Rs 4420380000

Thus, Manufacture cost = Direct production

cost + Fixed charges + Plant overhead costs.
Manufacture cost = (3315285000) +
(1105100000)+ (4420380000 )
Manufacture cost = Rs 8840765000

II. General Expenses = Administrative costs + distribution and selling costs + research and
development costs

A. Administrative costs= 5% of total product cost

Administrative costs = Rs 165764250
B. Distribution and Selling costs= 15% of total product cost
Distribution and Selling costs = Rs 497292700
C. Research and Development costs= 5% of total product cost
Research and Development costs = Rs 165764250
D. Financing (interest):
Interest = 5% of total capital investment
Interest = Rs 230500000

Thus, General Expenses = Rs 1059321200

III. Total Production cost = Manufacture cost + General Expenses

= (8840765000) + (1059321200)
Total production cost = Rs9900086200

IV. Gross Earnings/Income:

Wholesale Selling Price of TPA per kg = Rs 42
Total Income = Selling price Quantity of product manufactured Total
Income = Rs. 45*361600000=Rs 16272000000

Gross income = Total Income Total Product Cost =16272000000 (9900086200)

Gross Income = Rs 6371913800

Let the Tax rate be 45%

Net Profit = Gross income - Taxes = Gross income (1- Tax rate) Net
profit = 6371913800 *(1-0.45) = Rs 3504552590
Rate of Return:

Rate of return = Net profit100/Total Capital Investment Rate of

Return = 3504552590100/ (4610000000)
Rate of Return = 75 %

Pay Out Period=FCI/(net profit after tax per year+ Depreciation)

=601000000/(3504552590+ 641440000)
POP = 1.4 years