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Manufacturing Cost Estimation:: Dr. Chandra Mouli M.R

This document discusses how to estimate manufacturing costs for a chemical process. It outlines direct costs, fixed costs, and general expenses that need to be accounted for. These include raw materials, waste treatment, utilities, labor, maintenance, and overhead. The key data needed to estimate operating costs are the fixed capital investment, cost of labor, utilities, waste treatment, and raw materials. An example is provided to demonstrate calculating total annual manufacturing costs and costs per ton based on cost information for a nitric acid plant.

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Rayan Hassan
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48 views

Manufacturing Cost Estimation:: Dr. Chandra Mouli M.R

This document discusses how to estimate manufacturing costs for a chemical process. It outlines direct costs, fixed costs, and general expenses that need to be accounted for. These include raw materials, waste treatment, utilities, labor, maintenance, and overhead. The key data needed to estimate operating costs are the fixed capital investment, cost of labor, utilities, waste treatment, and raw materials. An example is provided to demonstrate calculating total annual manufacturing costs and costs per ton based on cost information for a nitric acid plant.

Uploaded by

Rayan Hassan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Manufacturing Cost Estimation

Instructor: Dr. Chandra Mouli M.R.

Chemical Engineering Department


Process Economics

How do we decide whether a given process is a


good investment?

•Determine the capital cost


•Determine the operating cost
•Judge the economic merit by combining the
capital and the operating costs
Outline
• Estimation of costs
– Direct, fixed, and general expense costs
– Operating labor
– Utility costs
– Raw materials
– Waste treatment costs
– others
Estimation of Manufacturing Costs

• Direct Costs
– Vary with production rate but not necessarily directly
proportional
• Fixed Costs
– Do not vary with production rate but relate “directly” to
production function
• General Expenses
– Functions to which operations must contribute –
overhead burden
Direct Costs
• Raw Materials • Maintenance and
• Waste Treatment Repairs
• Utilities • Operating Supplies
• Operating Labor • Laboratory Charges
• Supervisory and Clerical • Patents and Royalties
Labor
Fixed Costs
• Depreciation – covered as a separate topic in
Engineering Economics Course
• Local Taxes and Insurance
• Plant Overhead Costs
General Expenses
• Administration Costs
• Distribution and Selling Costs
• Research and Development
General Expenses
• Administration Costs
• Distribution and Selling Costs
• Research and Development
Manufacturing Costs
• Table 6.1
– Description of Items
• Table 6.2
– Factors for Estimating Costs

* We relate (historically) the relationship between


items in Table 6.1 to Direct Costs A (RM) , B (WT) , C
(UT) , D (OL), and FCI of Plant
Manufacturing Costs - examples
• Maintenance and Repairs
– 2 – 10 % FCI
– Proportional to Size of Plant
• Supervisory and Clerical Labor
– 10 – 25 % COL
– Proportional to Operating Labor
• Depreciation
– some % of FCI
Estimation of Direct Manufacturing Costs
6 6
Estimation of Fixed Manufacturing Costs
Estimation of General Manufacturing Costs
Manufacturing Costs
What data do we need to estimate
Operating Costs?

• Fixed Capital Investment (FCI) (Total Module


Cost or Grass Roots Cost)
• Cost of Operating Labor (COL)
• Cost of Utilities (CUT)
• Cost of Waste Treatment (CWT)
• Cost of Raw Materials (CRM)
Example:
The following cost information was obtained from a design for a
92,000 tonne/year nitric acid plant.

Fixed capital Investment: $11,000,000


Raw Material Cost: $7,950,000/yr
Waste Treatment Cost: $1,000,000/yr
Utilities: $ 356,000/yr
Direct Labor Cost: $ 300,000/yr

Determine:
a) The manufacturing cost in $/yr and $/tonne of nitric acid,
b) The percentage of manufacturing costs resulting from each
cost category given in Table 6.2.
Summary
• Basic approach is to account for all the costs
associated with the operation of a chemical process.
An estimate of all these costs can be made with a
knowledge of
– FCI
– C OL
– C UT From these get COMd –C WT
– C RM

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