CHAPTER 6:

ESTIMATION OF MANUFACTURING COSTS

1. 2. 3. 4. 5. 6. Factors Affecting Manufacturing Costs Estimating Labor Cost Estimating Raw Material Cost Yearly Costs and Stream Factors Estimating Utility Cost Estimating Waste Treatment Cost

4.1

Factors Affecting Manufacturing Costs

Direct Manufacturing Costs Represent operating expenses that vary with production rate Example of direct manufacturing costs Fixed Manufacturing Costs Costs that are independent of changes in production rate Example of fixed manufacturing costs General Expenses Represent an overhead burden that is necessary to carry out business functions Example of General Expenses

So, how to evaluate the cost of manufacture?

Generally, the cost of manufacture can be determined using the equation below: COM = DMC + FMC + GE Where: COM = Cost of Manufacturing DMC = Direct Manufacturing Costs FMC = Fixed Manufacturing Costs GE = General Expenses

The COM can also be determined when the following costs can be estimated
CTM or CGR COL

: Fixed Capital Investment (FCI) : Cost of Operating labor

CUT
CWT CRM

: Cost of Utilities
: Cost of Waste Treatment : Cost of Raw Materials

The equation for estimating the costs for each of the categories are:
DMC FMC GE = CRM + CWT + CUT + 1.33COL + 0.069FCI + 0.03COM = 0.708COL + 0.168FCI = 0.177COL + 0.009FCI + 0.16COM

The values of the costs are given in the Multiplication Factors Table * Note that by using the midpoint values given in column 2 of the table, the resulting equations for the individual items are calculated in column 3

The COM can be obtained by adding the three categories resulting the following equation:

COM = 0.304FCI + 2.73COL + 1.23 (CUT + CWT + CRM)

While for the cost of manufacture without depreciation (COMd) is

COM = 0.180FCI + 2.73COL + 1.23 (CUT + CWT + CRM)

* It should be noted that you should always use the best information that is available in order to establish these constants. The method presented, should only be used when no other information on these costs is available

Example 1
The following cost information was obtained from a design for a 92,000 tonne/year nitric acid plant. Fixed Capital Investment Raw Material Cost Waste Treatment Cost Utilities Direct labor Cost $ 11,.000,000 $ 7,950,000/yr $ 1,000,000/yr $ 356,000/yr $ 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 and estimation

Answer for Example 1

a) $15,610,000/yr or $170/tonne
b) Percentage of manufacturing cost Direct Costs : 70% Fixed Costs : 13% General Expenses : 17%

4.2 Estimating Labour Cost

The technique to estimate operating labor

requirement is based on the approach given by Ulrich. The operator requirements for various process equipment is

 The table provides with the number of

operators required per equipment unit per shift. Assumption being made on an average single operator working in chemical plant which operates 24 hrs/day, 365 days/year and 3 shifts/day. For costing purpose a single operator is calculated as equivalent to 4.5 operators to ensure the plant operate properly

Example 2
Estimate the operating labor requirement and costs for the toluene hydrodealkylation facility shown in figure 1.3 and 1.5 Answer: Labor Costs (1996) = $468,000/yr

4.3

Estimating Raw Material Costs

Raw Materials - are resources that will be

made into finished products. In normal practice, the cost of raw materials can be estimated by using the most current price data. The cost of raw material generally fluctuate due to many factors, and some might vary with seasonal pricing trend. Thus, it is advisable to look at average price over a period of several months.

4.4

Yearly Costs and Stream Factors

Manufacturing and associated costs are

often reported in terms of $/yr. For costing purposes, the fraction of time that plant is operating in a year is as below: Stream Factor (SF), SF = Number of Days Plant Operates per Year 365

Example 3
Determine the yearly cost of a toluene process. b. What is the yearly consumption of toluene? c. What is the yearly revenue from the sale of Benzene
a.

Assume a stream factor of 0.95 The flowrates given are in kg per steam hour Flowrate of toluene = 10,000 kg/h Flowrate of benzene = 8,210 kg/h Cost of toluene = $0.24/kg Cost of benzene = $0.27/kg

Answer: Yearly cost of toluene = $19.973,000/yr Yearly consumption of toluene = 83,200 tonnes/yr Yearly revenue from benzene sales = $18,447,000/yr

4.5 Utility Costs

Utility is the basic things needed to produce

something. The difficult part is to estimate the cost of fuel which will impact utilities such as electricity, steam and thermal fluids. The example of utilities cost provided by OffSites for a Plant with Multiple Process Units

 Most often, utilities take part in energy,

work and heat exchange activities in the plant. This can be measured either by inspection or by doing a simple heat and energy balance around each equipment. This data can also be used to determine the cost of utilities.

Example 4
Estimate the quantities and yearly costs of the appropriate utilities for the following pieces of equipment on the toluene hydrodealkylation PFD (Figure 1.3). You may assume a stream factor of 0.95 and that all the numbers on the PFD are on a stream basis.
a. b. c. d. e. f.

E-101, Feed Preheater E-102, Reactor Effluent Cooler H-101, Heater C-101, Recycle gas Compressor, assuming electric drive C-101, Recycle Gs Compressor, asuming steam drive using 10 barg steam discharging to atmospheric pressure P-101, Toluene Feed Pump

The duty on all of the units can be found in the following tables.

Answer for Example 2

a) b) c) d) e) f)

E-101 : Yearly Cost = $640,100/yr E-102 : Yearly Cost = $62,100/yr H-101 : Yearly Cost =$566,000/yr C-101 : Yearly Cost = $27,000/yr Cost of Steam : Yearly Cost = $52,400/yr P-101 : Yearly Cost = $8,300/yr

4.6

Estimating Waste Treatment Cost

The cost of waste treatment in current

practice is very significant due to stringent environmental regulations. It requires the designer/engineer to ensure sufficient budget is allocated to the treatment of solid and liquid waste streams. Examples on cost of waste treatment. However, the cost of handling hazardous waste is keep increasing from time to time.