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Cost Estimation: Siti Zullaikah PHD 11 September 2013

1) This document discusses factors that affect capital investment and production costs for a plant, including raw materials, labor, utilities, fixed costs, and downtime. 2) It notes that the ideal production rate is where total income equals total product costs, which is the break-even point. 3) The effects of production rate and operating time on costs should be considered to recommend a rate and schedule that gives the best economic results.

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62 views26 pages

Cost Estimation: Siti Zullaikah PHD 11 September 2013

1) This document discusses factors that affect capital investment and production costs for a plant, including raw materials, labor, utilities, fixed costs, and downtime. 2) It notes that the ideal production rate is where total income equals total product costs, which is the break-even point. 3) The effects of production rate and operating time on costs should be considered to recommend a rate and schedule that gives the best economic results.

Uploaded by

febrian_kusuma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost Estimation

Siti Zullaikah PhD


11 September 2013
• An acceptable plant design must present a process that is capable of
operating under conditions which will yield a profit.
• Net profit = Total income – all expenses
• Direct plant expenses: raw materials, labor, utilities
• Indirect expenses: administrative salaries, product sales, distribution
costs
• The total investment = fixed-capital investment + working capital
• Fixed-capital investment: physical equipment and facilities in the
plant.
• Working capital: to pay salaries, keep raw materials and products on
hand, and handle other special items requiring a direct cash outlay.

Introduction
Total capital investment (without land)
• The engineer must be aware of actual prices for raw
materials and equipment, company policies, government
regulations and others.

Factors Affecting Investment and


Production Costs
• If equipment stands idle for an extended period, raw
materials and labor costs are usually low; HOWEVER,
many other costs (fixed costs) like maintenance,
protection, depreciation, continue even though the
equipment is not active.
• Not producing a product – no producing revenue
• Downtime should be kept to a necessary minimum (main
source of poor profitability in process plants).

Factors Affecting Investment and


Production Costs
• Figure above gives a graphical analysis of the effect on costs
and profits when the rate of production varies.
• As indicated in this figure, the fixed costs remain constant and
the total product cost increases as the rate of production
increases.
• The point where the total product cost equals the total
income is known as the break-even point.
• An ideal production rate for this chemical processing plant
would be approximately 450,000 kg/month, because this
represents the point of maximum net earnings.
• The effects of production rate and operating time on costs
should be recognized.
• By considering sales demand along with the capacity and
operating characteristics of the equipment, the engineer can
recommend the production rate and operating schedules that
will give the best economic results.
• Law and regulations that have a direct effect on industrial
costs
Export tariff regulations
Depreciation taxes
Income tax rules
Environmental and safety regulations

Government Policies
Types of Capital Cost Estimates

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