PLANT DESIGN AND ECONOMICS

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1 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

2 BREAKDOWN OF TOTAL PRODUCT COST Total Product Cost (TPC) Manufacturing costs (operating or production costs) General expenses (sare) (sales, administr., research, engng) Variable production costs (Direct production costs) Fixed charges Depreciation Local taxes Insurance Rent Interest Raw materials Utilities Operating labor maintenance& repairs operating supplies Laboratory charges direct supervision & clerical labor( patents& royalties Administrative costs Plant overhead executive salaries Clerical wages Legal fees office supplies Communication distribution& selling costs General plant overhead sales offices Payroll overhead Sales staff social security Shipping retirement plans Advertising packaging research& development medical services safety& property protection Restaurants & recreation facilities storage facilities 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

3 ۵ 1-Raw Materials 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. ۶ 1-Raw Materials 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

4 ٧ 2-Operating Labor 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. ٨ 2-Operating Labor 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 employeehours per ton of product per step is obtained from Fig. 6-8 ۴

5 ٩ 2-Operating Labor ١٠ 2-Operating Labor 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

6 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. ١٢ 2-Operating Labor a general rule of thumb: Processing Fluid solid-fluids solid Labor requirements (employee-hours/ton of product) 1/3 to 2 2 to 4 4 to 8 example ethylene oxide polyethylene coal briquetting ۶

7 ١٣ 3-Direct Supervisory and Clerical Labor 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. 4-Utilities ١۴ A more detailed list of average rates for various utilities is presented in Appendix B ٧

8 ١۵ 4-Utilities 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. ١۶ 5-Maintenance and Repairs These expenses include the cost for labor, materials, and supervision. ٨

9 ١٧ 6-Operating Supplies 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. ١٨ 7-Laboratory Charges 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

10 ١٩ 8-Patents and Royalties 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. ٢٠ 8-Patents and Royalties ١٠

11 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. ٢٢ FIXED CHARGES 1-Depreciation 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

12 ٢٣ FIXED CHARGES 2-Local Taxes 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. ٢۴ FIXED CHARGES 3-Insurance 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

13 PLANT OVERHEAD COSTS ٢۵ Nonmanufacturing machinery, equipment, and buildings are necessary for many of the general plant services are part of the plant-overhead costs Hospital and medical services General engineering Safety services Cafeteria and recreation facilities General plant maintenance and overhead Payroll overhead including employee benefits Control laboratories Packaging Plant protection Janitor and similar services Employment offices Distribution of utilities Shops Lighting Interplant communications and transportation Warehouses Shipping and receiving facilities PLANT OVERHEAD COSTS ٢۶ These charges are closely related to the costs for all labor directly connected with the production operation. The plant-overhead cost for chemical plants is about 50 to 70 percent of the total expense for operating labor, supervision, and maintenance. ١٣

14 GENERAL EXPENSES 1-ADMINISTRATIVE COSTS ٢٧ Salaries and wages for administrators, secretaries, accountants, stenographers, typists, and similar workers are part of the administrative expenses, along with costs for office supplies and equipment, outside communications, administrative buildings, and other overhead items related with administrative activities. For a quick estimate, the administrative costs may be approximated as 20 to 30 percent of the operating labor. GENERAL EXPENSES 2-DISTRIBUTION AND MARKETING COSTS ٢٨ Salaries, wages, supplies, and other expenses for sales offices; salaries, commissions, and traveling expenses for salesmen; shipping expenses; cost of containers; advertising expenses; and technical sales service. These costs for most chemical plants are in the range of 2 to 20 percent of the total product cost. The higher figure usually applies to a new product or to one sold in small quantities to a large number of customers. The lower figure applies to large-volume products, such as bulk chemicals. ١۴

15 ٢٩ GENERAL EXPENSES 3-RESEARCH AND DEVELOPMENT COSTS Research and development costs include salaries and wages for all personnel directly connected with this type of work, fixed and operating expenses for all machinery and equipment involved, costs for materials and supplies, direct overhead expenses, and miscellaneous costs. In the chemical industry, these costs amount to about 2 to 5 percent of every sales dollar. ١۵