PLANT DESIGN AND ECONOMICS (6) Zahra Maghsoud TOTAL PRODUCT COST - PDF document

٠١/٣٠/١۴٣٧ PLANT DESIGN AND ECONOMICS (6) Zahra Maghsoud TOTAL PRODUCT COST ٢  Total product costs are commonly calculated on one of three bases:  daily basis  unit-of-product basis  annual basis  The annual cost basis is probably the best choice for estimation of total cost.  The best source of information for use in total-product-cost estimates is data from similar or identical projects. ١

٠١/٣٠/١۴٣٧ BREAKDOWN OF TOTAL PRODUCT COST Total Product Cost (TPC) Manufacturing costs General expenses (sare) (operating or production costs ) (sales, administr., research, engng) • Administrative costs Variable production costs Fixed charges Plant overhead  executive salaries ( Direct production costs)  Clerical wages  Legal fees • Depreciation  office supplies • Local taxes  Communication • Insurance • distribution& selling costs • Rent General plant overhead  sales offices • Interest • Payroll overhead  Sales staff • Raw materials • social security  Shipping • Utilities • retirement plans  Advertising • Operating labor • packaging • research& development • maintenance& repairs • medical services • operating supplies • safety& property protection • Laboratory charges • Restaurants & recreation facilities • direct supervision & clerical labor( • storage facilities • patents& royalties ٣ Manufacturing Costs ۴  Direct production costs include expenses directly associated with the manufacturing operation.  Fixed charges are expenses which remain practically constant from year to year and do not vary widely with changes in production rate.  Plant-overhead costs are for hospital and medical services; general plant Maintenance,… .These costs are similar to the basic fixed charges in that they do not vary widely with changes in production rate. ٢

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 1-Raw Materials ۵  The amount of the raw materials can be determined from process material balances.  In many cases, certain materials act only as an agent of production and may be recoverable to some extent. Therefore, the cost should be based on the amount of raw materials actually consumed as determined from the overall material balances.  Direct price quotations from prospective suppliers are preferable to published market prices. DIRRCT PRODUCTION COSTS 1-Raw Materials ۶  Freight or transportation charges should be included in the raw-material costs.  Bulk shipments are cheaper than smaller-container shipments, but they require greater storage facilities and inventory.  In chemical plants, raw-material costs are usually in the range of 10 to 50 percent of the total product cost. ٣

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 2-Operating Labor ٧  In general, operating labor may be divided into skilled and unskilled labor.  For chemical processes, operating labor usually amounts to about 15 percent of the total product cost.  A 0.2 to 0.25 power of the capacity ratio when plant capacities are scaled up or down is often used for calculating labor requirements . DIRRCT PRODUCTION COSTS 2-Operating Labor ٨  For calculating operating labor:  First, a process step is defined as any unit operation, unit process, or combination thereof, e.g., reaction, distillation, evaporation, drying, filtration, etc.  Once the plant capacity is fixed, the number of employee- hours per ton of product per step is obtained from Fig. 6-8 ۴

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 2-Operating Labor ٩ DIRRCT PRODUCTION COSTS 2-Operating Labor ١٠  Example 6 Estimation of labor requirements. Consider a highly automated processing plant having a capacity of 100 tons/day of product and requiring principal processing steps of heat transfer, reaction, and distillation. What are the average operating labor requirements for an annual operation of 300 days? ۵

٠١/٣٠/١۴٣٧ Calculating the man-hour for a project ١١  Step 1  Look at the calendar for the time period in question. For an annual budget, remove all non-working days from the work year. Do the same for a project planned to be completed over a shorter period of time.  Step 2  Assume you have a 12-week project with employees working a 10-hour day, five days a week. There are two national holidays in the time period when your employees will not work. There are five employees on the job.  Step 3  Multiply the five-day work week by 12 weeks: 12 by 5 = 60. Subtract the two holidays for 58 days. Multiply the number of work days by 10 hours per day: 58 by 10 = 580--these are the project hours per employee.  Step 4  Multiply the per-employee man hours by the number of employees on the job: 580 by 5 = 2,900. There are 2,900 total man hours assigned to this project. DIRRCT PRODUCTION COSTS 2-Operating Labor ١٢  a general rule of thumb: Labor requirements Processing example (employee-hours/ton of product) Fluid 1/3 to 2 ethylene oxide solid-fluids 2 to 4 polyethylene solid 4 to 8 coal briquetting ۶

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 3-Direct Supervisory and Clerical Labor ١٣  The necessary amount of this type of labor is closely related to the total amount of operating labor, complexity of the operation, and product quality standards.  The cost for direct supervisory and clerical labor averages about 15 percent of the cost for operating labor. DIRRCT PRODUCTION COSTS 4-Utilities ١۴ A more detailed list of average rates for various utilities is presented in Appendix B ٧

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 4-Utilities ١۵  For Steam requirements an allowance for radiation and line losses must be made.  Electrical power requirements should be increased by a factor of 1.1 to 1.25 to allow for line losses and contingencies.  As a rough approximation, utility costs for ordinary chemical processes amount to 10 to 20 percent of the total product cost. DIRRCT PRODUCTION COSTS 5-Maintenance and Repairs ١۶  These expenses include the cost for labor, materials, and supervision. ٨

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 6-Operating Supplies ١٧  Items such as lubricants, test chemicals, and similar supplies cannot be considered as raw materials or maintenance and repair materials, and are classified as operating supplies.  The annual cost for this type of supplies is about 15 percent of the total cost for maintenance and repairs. DIRRCT PRODUCTION COSTS 7-Laboratory Charges ١٨  The cost of laboratory tests for control of operations and for product-quality control is covered in this manufacturing cost.  For quick estimates, this cost may be taken as 10 to 20 percent of the operating labor. ٩

٠١/٣٠/١۴٣٧ DIRRCT PRODUCTION COSTS 8-Patents and Royalties ١٩  A certain amount of the total expense involved in the development and procurement of the patent rights should be borne by the plant as an operating expense.  These costs are usually amortized over the legally protected life of the patent.  A rough approximation of patent and royalty costs for patented processes is 0 to 6 percent of the total product cost. DIRRCT PRODUCTION COSTS 8-Patents and Royalties ٢٠ ١٠

٠١/٣٠/١۴٣٧ FIXED CHARGES ٢١  Certain expenses are always present in an industrial plant whether or not the manufacturing process is in operation.  Costs that are invariant with the amount of production are designated as fixed costs or fixed charges. These include costs for depreciation, local property taxes, insurance, and rent.  As a rough approximation, these charges amount to about 10 to 20 percent of the total product cost. FIXED CHARGES 1-Depreciation ٢٢  A decrease in value is assumed to occur throughout the usual life of the material possessions. This decrease in value is designated as depreciation.  The annual depreciation rate for machinery and equipment ordinarily is about 10 percent of the tied-capital investment, while buildings are usually depreciated at an annual rate of about 3 percent of the initial cost. ١١

٠١/٣٠/١۴٣٧ FIXED CHARGES 2-Local Taxes ٢٣  The magnitude of local property taxes depends on the particular locality of the plant and the regional laws.  Annual property taxes for plants in highly populated areas are ordinarily in the range of 2 to 4 percent of the fixed-capital investment.  In less populated areas, local property taxes are about 1 to 2 percent of the tied-capital investment. FIXED CHARGES 3-Insurance ٢۴  Insurance rates depend on the type of process being carried out in the manufacturing operation and on the extent of available protection facilities. On an annual basis, these rates amount to about 1 percent of the fixed-capital investment. 4-Rent  Annual costs for rented land and buildings amount to about 8 to 12 percent of the value of the rented property. ١٢