Chapter13 Cost Estimation

CHAPTER 13

COST ESTIMATION

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Chapter13 Cost Estimation

Cost Estimation:
Before the plant to be operated, specified money must be supplied to purchase and install
the equipment. The capital needed to supply the necessary plant facilities is called fixed
capital investment while that for the operation of the plant is called the working principal
and sum of two capitals is called total capital investment.
An acceptable plant design must present a process that is capable of operating
under conditions which will yield a profit. Since, Net profit total income-all expenses
It is essential that chemical engineer be aware of the many different types of cost
involved in manufacturing processes. Capital must be allocated for direct plant expenses;
such as those for raw materials, labor, and equipment. Besides direct expenses, many
other indirect expenses are incurred, and these must be included if a complete analysis of
the total cost is to be obtained. Some examples of these indirect expenses are
administrative salaries, product distribution costs and cost for interplant communication.

Cost Estimation
TABLE 13.1: Costs of different Equipments
Equipment Cost of equipment
Gasifier 140000$
Cyclone 2400$
Waste heat boiler 9000$
Scrubber 20000$
Compressor 6371$
Shift Converter 180000$
Waste heat boiler 8000$
Compressor 7000$
Absorber 35000$
Expander 2500$
Membrane 185000
PSA 21000$
Compressor 10000$
Ammonia Converter 220000$
Partial Condenser 13000$

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Chapter13 Cost Estimation

Separator 4912.6$
Recycle Compressor 9000$

13.1 Direct Cost

Purchased equipment cost = E = 510023$
Installation cost (40%E) = 204009$
Instrumentation and control cost (13%E) = 66302$
Piping cost (10% E) =51002$
Electric cost (10%E) = 51002$
Building (including services) (29%E) = 147906$
Yard improvement (10%E) = 51002$
Land cost (6%E) = 30601$
Total Direct Cost = 601824$
13.2 Indirect cost
Engineering and Supervision Cost (32%E) = 163207$
Constriction Expenses (30%E) = 153006$
Contractor fee (18%E) = 91804$
Contingency Cost (30%E) = 153006$

Total Indirect Cost = 561023$

13.3 Total Capital Investment

Fixed Capital Investment = Direct cost + Indirect cost
F.C.I = D.C + I.C
F.C.I = 601824$ + 561023$
F.C.I = 1162847$
Working Capital (18%F.C.I) = 209312.46$
Total Capital Investment = Working Capital Cost + Fixed Capital Investment
T.C.I = W.C + F.C.I
T.C.I = 1372159.46$
13.4 Product Cost

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Chapter13 Cost Estimation

Assume that the Fixed Capital Investment depreciate by straight line method for 20 years.
Assuming 5 % Salvage value at the end of plant life.
Depreciation = D = (V-VS)/N
V = F.C.I
V = 1162847$
VS = 0.05*F.C.I
VS = 58142.35$
N = no. of years = 20
D = (1162847–58142.35)/ 20
D = 55235.2$
Total Product Cost = Total Capital Investment – Depreciation
T.P.C = 1316924.26$
Fixed Charges (12%T.P.C) = 158030.9$
Direct Product Cost (55%T.P.C) = 724308.3$
Plant Overhead (10%T.P.C) = 131692.4$
Manufacturing Cost = Direct product cost + Fixed Charges + Plant Overhead Cost
Manufacturing Cost = $1014031.6
13.5 General Expenses
General Expenses = Administrative Cost + distribution and selling cost + research and
development cost
13.5.1. Administrative Cost
It is 2-6% of total product cost
Consider
Administrative cost = 5%of total product cost
Administrative cost = $65846.2
13.5.2. Distribution and Selling Cost
It includes cost for sales offices, salesmen, shipping, and advertising.
It is 2-20% of total product cost
Consider that distribution and selling costs = 15% of total product cost
Distribution and selling costs = $197538.6
13.5.3. Research and Development Cost

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It is about 5 % of total product cost

Research and development cost = 0.05 * 1316924.26
Research and development cost = $65846.2
13.5.4. Financing (Interest)
It is about 0-10% of total Capital Investment
Consider interest is 5% of total capital investment
Interest = 0.05 * 1372159.46
Interest = $68607.9
Thus;
General Expenses = $253286.84
So
Total product cost = Manufacturing cost + General Expenses
Total product cost = 1014031.6+ 329231
Total product cost = $1343262.6

13.6 Gross Earning/ income

Wholesale selling price of AMMONIA per ton = $ 180
Total income = Selling price * Quantity of product manufactured
Total income = 180 * 1600
Total income = $2880000
Gross income = Total Income – Total Product Cost
Gross income = 2880000 –1343262.6
Gross income = $1536737.4
Let the Tax rate is 45%
Taxes = 40% of Gross income
= 0.40 * 1536737.4
Taxes = $6.14 * 105
Net profit = Gross income – Taxes = Gross income * (1- Tax rate)
Net profit = $922737.4

13.7 Rate of return

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Rate of return = Net profit * 100/ Total Investment

Rate of return = 67.2%

13.8 Break-even Analysis

Data Available is given as under:
Annual Fixed charges, overhead and expenses = $437740.8
Total Annual Sales = $1425000
Wholesale selling price of AMMONIA per ton = $180
Direct production Cost per ton of AMMONIA = 437740.8 * 180/ 1425000
Direct production Cost per ton of AMMONIA = $55per ton
Let ‘n’ be the Break-even production rate
Number of tons needed for a break-even point is given by
(437740.8) + (55* n) = (180 * n)
n = 3501.9tons/year
Break- even Point = break- even production rate / annual production rate
Break- even Point = 0.8 Years

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