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This term can be defined of the analysis of income, cost and profit structures with particular
reference to the break-even point, to show the effect on break even point of charges in
income and costs. The break-even analysis will require an estimation of fixed costs, variable
cost and total revenues.
TOTAL COST
Total cost is also known as operating costs, according to Coulson and Richardsons (2001).
Total cost can divide into two groups :
Fixed Capital
Fixed capital is the total cost of the plant ready for start-up. It is cost paid to the contractors.
It includes the cost for :
Working Capital
Working capital is the additional investment needed, over and above the fixed capital, to
start up the plant and operate it to the point when income is earned. It includes the cost of :
Start-up
Raw material and intermediates in the process
Finished product inventories
Funds to cover outstanding account from customers
[Sources : Chemical Engineering Design, Fourth Edition by R.K. Sinnott]
Fixed Cost
Fixed costs are the costs that do not vary with production rate. These are the bills that have
to be paid whatever the quantity produced. It includes as follows :
Maintenance (labour and material)
Operating labour
Laboratory cost
Supervision
Plant overheads
Capital charges
Rates (and any other local taxes)
Insurance
License fees and royalty payments
Fixed cost (FC) = QT x f
Where : QT = Total plant capacity per year
f = fixed cost per tonne
BREAK-EVEN POINT
The objective of the break-even analysis is to determine the quantity at which the product, at
an assumed price, will generate enough revenue to start earning a profit. Break-even point is
to estimate the volume or capacity for the company to reach the total cost equal to the total
revenue and no profit was earned yet. So, it can be defined as :
Total Revenue = Total Cost
TR = TC
Then, at some value of variable the revenue and the total cost relations will intersect to
identify the break-even point, QBE. If Q > QBE, there is a predictable profit. But if Q < QBE,
there is a loss. Profit is defined as :
Profit = Total revenue - Total cost
= TR - TC
Break-even point can be calculated using the equation below:
BEP = FC /(P-VC)
Breakeven Point = Fixed Costs / (Unit Selling Price - Variable Costs)
This calculation will let you know how many units of a product youll need to sell to break
even. Once youve reached that point, youve recovered all costs associated with producing
your product (both variable and fixed). Above the breakeven point, every additional unit sold
increases profit by the amount of the unit contribution margin, which is defined as the
amount each unit contributes to covering fixed costs and increasing profits. As an equation,
this is defined as:
Unit Contribution Margin = Sales Price - Variable Costs
[Sources :http://tutor2u.net/business/production/break_even.htm]
ESTIMATION OF PURCHASED EQUIPMENT COSTS
To obtain an estimate of the capital cost of a chemical plant, the costs associated with major
plant equipment must be known. The most accurate estimate of the purchased cost of a
piece of major equipment is provided by a current price quote from a suitable seller of
equipment. The next best alternative is to use cost data on previously purchased equipment
of the same type. Another technique, sufficiently accurate for study and preliminary cost
estimates, utilizes summary graphs available for various types of common equipment. Any
cost data must be adjusted for any difference in unit capacity and also for any elapsed time
since the cost data were generated.
The most common simple relationship between the purchased cost and an attribute of the
equipment related to units of capacity is given by :
= ( )
Where
C = Purchased Cost
n = Cost Exponent
When one depends on past records or published correlations for price information, it is
essential to be able to update these costs to take changing economic conditions (inflation)
into account. This can be achieved by using the following expression :
2
2 = 1 ( )
1
Where
C = Purchased Cost
I = Cost Index
= $283,922.62
2(2016)
(2016) = 1(2001)
1(2001)
536.4
= $283,922.62 ( )
397
= $ 381,829.44
2. From Table A.5, the equation for bare module cost for compressor is:
= = 381,829.44 (4.0)
= 1,527,317.75
= , , .
= , ,
= $ 4,034.96
2(2016)
(2016) = 1(2001)
1(2001)
= $ 5,451.77
1 = 1.89 2 = 1.35
Pressure, P = 6 barg
log = 0 + 0 log(6) 0[log 6]2
= 1
= 1.6
= = (1 + 2 )
= $ 4,034.96(1.89 + 1.35(1.6)(1))
= $ 16,341.59
= $108,950.89
2(2016)
(2016) = 1(2001)
1(2001)
536.4
= $108,950.89 ( )
397
= $ 147,207.20
2. From Table A.5, the equation for bare module cost for compressor is:
=
4. From Table A.6 and Figure A.19, find :
= = 147,207.20 (1.25)
= 184,008.99
= , .
= , .
Bare module cost for granulator is assume to be USD 73,826.80 from the current market
price.
(Sources : http://www.karishmapharmamachines.com/dry-granulator.html#dry-granulator)
1. To find Cp, find K1, K2 and K3 at Table A.1 at floating head at Heat Exchanger.
= $71,712.88
Pressure, P = 3 barg
= 1
5. Find CBM
= [1 + 2 ]
= $71712.88[1.63 + (1.66)(1)(1)]
(2001) = $235,935.38
2016 536.4
(2016) = 2001 = $235,935.38
2001 397
(2015) = $318780.20
H-101 1 318,780.20
H-102 5 318,780.20
H-103 1 318,780.20
H-104 5 318,780.20
H-105 1 318,780.20
H-106 5 318,780.20
H-107 1 318,780.20
H-108 11 322,479.58
TOTAL 2,553,941.00
1. To find Cp, find K1, K2 and K3 at Table A.1 at disc & drum at filter.
= $429,647.80
2. From Table A.5, the equation for bare module cost for filter is:
= = $429,647.80 (1.65)
= $708,918.80
536.4
(2016) = 2001 2016 = $708,918.80 397
2001
= $957,843.90
= $, .
= $, , .
1. To find Cp, find K1, K2 and K3 at Table A.1 at disc & drum at filter.
= $151,618.30
2. From Table A.5, the equation for bare module cost for mixer is:
= = $151,618.30 (1.38)
= $209,233.30
2016 536.4
(2016) = 2001 = $209,233.30
2001 397
= $282,702.10
= $, .
= $565,404.20
= $22,972.10
2. From Table A.5, the equation for bare module cost for separator is:
= = $22,972.10 x 1.57
= $36,066.10
2016 536.4
(2016) = 2001 = $36,066.10
2001 397
= $48,730.10
= $, .
= $97,460.20
EQUIPMENT (2016)
Reactor 6,109,271.00
Pump 253,599.60
Dryer 368,018.00
Filter 3,831,375.60
Mixer 565,404.20
Separator 97,460.20
Granulator 73,826.80
Total 13,852,895.80
The capital cost for a chemical plant must take into consideration many costs other than the
purchased cost of equipment. The Chemical Engineering Plant Cost Index (CEPCI) can be
used to account for changes the result from inflation. In most situation, cost information will
not be available for the same process configuration thus other estimating techniques can be
used like the Lang Factor technique.
In industrial engineering, the Lang factor is a ratio of the total cost of installing a process in a
plant to the cost of its major technical components. The factors were introduced by H.J. Lang
in Chemical Engineering magazine in 1947 as a method of estimating the total installation
cost for plants and equipment.
These factors are widely used in the refining and petrochemical industries to help
estimate the cost of new facilities. A typical multiplier for a few unit within a refinery would be
in the range of 5.0. This means if you add up the purchase price of all the pumps, heat
exchangers, pressure vessels and other process equipment then multiply that cost by 5, will
obtain a rough estimate of the total installed cost of the plant, including equipment, materials,
construction and engineering. The accuracy of this estimate method usually is +/- 30%. The
factors change over time because construction labor, bulk materials (concrete,pipe),
engineering design, indirect costs and major process equipment prices often do not change
at the same rate.
Factorial Estimates
To make more accurate estimate, the cost factors that are compounded into Lang Factor
are considered individually. The direct-cost items that are incurred in the construction of a
plant :
The contribution of each of these items to the total cost is calculated by multiplying the total
purchased equipment by an appropriate factor. The indirect costs are ;
Design and engineering costs, which cover the cost of design and the cost of
engineering the plant : purchasing, procurement and construction supervision.
Typically 20% to 30% of direct capital cost.
Contractors fee, if a contractor is employed his fees(profits) would be added to the
capital cost and would range from 5% to 10% of the direct costs.
Contingency allowance, this is an allowance built into the capital cost estimate to
cover for unforeseen circumstances (labor disputes, design errors, adverse weather).
Typically 5 to 10% of the direct costs.
Besides only focusing on the price of raw materials, a large sum of investment to establish a
fully operational plant must be made. Fixed capital investment is simply the sum of money
that required to be invested at the early stage of the construction of a fully operating plant.
Purchasing of equipment that is needed and the installation is crucial part as it will be the
core investment that will determine the compatibility of the plant as well as piping installation,
land, instrumentation, services and the land where the plant is going to be established.
Table : Fixed Capital Investment of the Lithium Carbonate Plant
Direct Cost
Equipment Installation
Indirect Costs
10% of total direct cost 7,518,046.90
Engineering and supervision 7,518,046.90
10% of total direct cost
Legal expenses 3,759,023.50
5% of total direct cost 9,021,656.40
Contractors fee
27816773.70
12% of total direct cost
Contingencies
Total
Operating capital represents costs (variable cost plus fixes capital cost) necessary to
operate the plant. Listed below show the components of the working capital that need to be
taken account :
Raw materials
Labor Cost
Utilities
Waste Treatment
The technique used to determine the operating labor cost is by using Alkayat and Gerrard
method. According to this method, the operating labor requirement for chemical processing
plant is given by equation below:
= 3.008 ( )
Assumption:
3 340 = 1020
ii. A single operator works on average 48 weeks a year. This is due to 3 weeks time off for
vacation and sick leave. Hence.
1 5 48 = 240
1
1020 = 4.25
240
From the assumption, the total number of operator needed for all equipments are:
Engineering Department
Technical Department
Non-Shift Worker
Administration Team
Sales
Utilities cost includes electricity and water that used in the plant as well as the management
cost for the treatment of waste. This term includes power, steam, cooling and process water
and the effluent treatment, unless costed separately. The quantities that are been stated
above can be obtained from the energy balance. The total utilities is come from the total
energy that are calculated for each equipment that are required utility to be supplied in order
for them to operate. The price should be taken from the primary sources and the plant
location. The current cost of utilities supplied by the utility companies such as electricity and
water can be obtained from the local authority.
= USD 198,825,627.20
Operating Cost = Fixed Capital Cost + Variable Cost
= USD 252,274,568.00
Start-up Costs
Start-up costs is defined as costs allocated for starting up the plant operation. Process
modifications, start-up labor and loss in production are some of the examples of start-up
costs.
Douglas also estimated the total start-up cost of the plant operation is to be 10% of the
= 0.10 x 102,997,243.30
= $10,299,724.30
Total Investment
As stated earlier, total capital investment is the sum of the fixed capital
+ Start-up costs
= $ 257,609,462.10
Total Revenue
Product credit
Therefore,
= USD 285,014,600.00/year
$197,951,861.90)
= $264,222,748
Based on the result of the economic analysis, we can determine the break even point that is
1195 ton/year which mean this plant will only start to get the income after manage to
manufacture that amount of lithium carbonate. Based on the calculation above, the payback
period that are calculated is around 5 years which is approximately that the plant will obtain
its full investment back. From the calculation of costing above, we used the different method
of calculating the cost. Some are using the manual steps to determine the cost while others
can also use the CAPCOST estimation software. In this case, some of the estimation of cost
we use the manual technique and others we use the CAPCOST estimation software. The
CAPCOST estimation software some how it is very helpful in order to determine the costing
of a plant in a short time given.
Thus, by considering of all the factors that are being said above it is wise and crucial to
determine and consider all of the aspects in order to have a good view of economic analysis
even it is just using estimation value. The method that are used in the estimating the value is
by taking the maximum value of any price because it can reduce the floating of budget.
While the most important issue is the total cost is not exceeding the budget that are given.
REFERENCES