part 6

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PLANT DESIGN AND
ECONOMICS
(6)
Zahra Maghsoud
TOTAL PRODUCT COST
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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. ٠۶/٢۶/١۴٣۶
BREAKDOWN OF TOTAL PRODUCT COST
Total Product Cost (TPC)
Manufacturing costs
(operating or production costs)
Variable production costs
(Direct production costs)
General expenses (sare)
(sales, administr., research, engng)
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
Plant overhead
•Administrative costs
executive salaries
Clerical wages
Legal fees
office supplies
Communication
•distribution& selling costs
sales offices
S l staff
Sales
ff
Shipping
Advertising
•research& development
General plant overhead
•Payroll overhead
•social security
•retirement plans
•packaging
•medical services
•safety& property protection
•Restaurants & recreation facilities
•storage facilities
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Manufacturing Costs
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Direct production costs include expenses directly associated with the manufacturing operation.
with the manufacturing operation.
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Fixed charges are expenses which remain practically constant from year to year and do not vary widely with changes in production rate.
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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.
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DIRRCT PRODUCTION COSTS
1‐Raw Materials ۵
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The amount of the raw materials can be determined from process material balances.
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
material balances. 
Direct price quotations from prospective suppliers are preferable to published market prices. DIRRCT PRODUCTION COSTS
1‐Raw Materials ۶
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Freight or transportation charges should be included in the raw‐material
raw
material costs.
costs.
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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.
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DIRRCT PRODUCTION COSTS
2‐Operating Labor
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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
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For calculating operating labor:
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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
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DIRRCT PRODUCTION COSTS
2‐Operating Labor
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DIRRCT PRODUCTION COSTS
2‐Operating Labor
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Example 6 Estimation of labor requirements. Consider a highly automated processing plant having a capacity of 100
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?
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Calculating the man‐hour for a project
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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
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:
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
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a general rule of thumb:
Processing
Fluid
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Labor requirements
(employee-hours/ton of product)
1/3 to 2
example
ethylene oxide
solid-fluids
2 to 4
polyethylene
solid
4 to 8
coal briquetting
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DIRRCT PRODUCTION COSTS
3‐Direct Supervisory and Clerical Labor
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The necessary amount of this type of labor is closely related to the total amount of operating labor, complexity of the
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
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A more detailed list of
average rates for various
utilities is presented in
Appendix B
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DIRRCT PRODUCTION COSTS
4‐Utilities
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For Steam requirements an allowance for radiation and line losses must be made.
losses must be made.
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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
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These expenses include the cost for labor, materials, and supervision.
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DIRRCT PRODUCTION COSTS 6‐Operating Supplies
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Items such as lubricants, test chemicals, and similar supplies cannot be considered as raw materials or maintenance and
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
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The cost of laboratory tests for control of operations and for product‐quality
product
quality control is covered in this manufacturing cost.
control is covered in this manufacturing cost.
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For quick estimates, this cost may be taken as 10 to 20 percent of the operating labor.
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DIRRCT PRODUCTION COSTS 8‐Patents and Royalties
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A certain amount of the total expense involved in the development and procurement of the patent rights should be
development and procurement of the patent rights should be borne by the plant as an operating expense.
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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
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FIXED CHARGES
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Certain expenses are always present in an industrial plant whether or not the manufacturing process is in operation.
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.
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As a rough approximation, these charges amount to about 10 to 20 percent of the total product cost.
FIXED CHARGES
1‐Depreciation
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A decrease in value is assumed to occur throughout the usual life of the material possessions. This decrease in value is
life of the material possessions. This decrease in value is designated as depreciation.
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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
about 3 percent of the initial cost.
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FIXED CHARGES
2‐Local Taxes
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The magnitude of local property taxes depends on the particular locality of the plant and the regional laws.
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
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Insurance rates depend on the type of process being carried out in the manufacturing operation and on the extent of
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
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Annual costs for rented land and buildings amount to about 8 to 12 percent of the value of the rented property.
12
f h
l
f h
d
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PLANT OVERHEAD COSTS
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Nonmanufacturing machinery, equipment, and buildings are necessary for many
of the general plant services are part of the plant
plant-overhead
overhead costs
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Hospital and medical services
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Janitor and similar services
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General engineering
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Employment offices
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Safety services
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Distribution of utilities
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Cafeteria and recreation facilities
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Shops
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General plant maintenance and overhead
General plant maintenance and overhead
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Lighting
ighting
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Payroll overhead including employee benefits
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Control laboratories
Interplant communications and transportation
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Packaging
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Warehouses
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Plant protection
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Shipping and receiving facilities
PLANT OVERHEAD COSTS
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These charges are closely related to the costs for all labor directly connected with the production operation.
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.
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GENERAL EXPENSES
1‐ADMINISTRATIVE COSTS
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Salaries and wages for administrators, secretaries, accountants, stenographers, typists, and similar workers are part of the
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 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
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Salaries, wages, supplies, and other expenses for sales offices; g p
pp g
salaries, commissions, and traveling expenses for salesmen; shipping expenses; cost of containers; advertising expenses; and technical sales service.
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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.
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GENERAL EXPENSES 3‐RESEARCH AND DEVELOPMENT COSTS
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Research and development costs include salaries and wages for all personnel directly connected with this type of work,
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. 
IIn the chemical industry, these costs amount to about 2 to 5 h h i li d
h
b
2 5
percent of every sales dollar.