CHAPTER 2

ESTIMATION OF MANUFACTURING COSTS

Sub chapter covered

2.1 Factors Affecting Manufacturing Costs

2.2 Estimating Labor Cost
2.3 Estimating Raw Material Cost
2.4 Yearly Costs and Stream Factors
2.5 Estimating Utility Cost
2.6 Estimating Waste Treatment Cost
 2.1 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 Manufacture
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 : Fixed Capital Investment (FCI)

 COL : Cost of Operating labor

 CUT : Cost of Utilities

 CWT : Cost of Waste Treatment

 CRM : Cost of Raw Materials

The equation for estimating the costs for each of
the categories are:

DMC = CRM + CWT + CUT + 1.33COL + 0.069FCI + 0.03COM

FMC = 0.708COL + 0.168FCI

GE = 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 $ 11,.000,000

Raw Material Cost$ 7,950,000/yr
Waste Treatment Cost $ 1,000,000/yr
Utilities $ 356,000/yr
Direct labor Cost $ 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%
2.2 Estimating Labor Cost

 The technique to estimate operating labor

requirement is based on the approach given by
Ulrich.
 The operator requirements for various process equi
pment 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
 2.3 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.
 2.4 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
a. 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

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
2.5 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 O
ff-Sites for a Plant with Multiple Process U
nits
 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. E-101, Feed Preheater

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

The duty on all of the units can be found in the following tables.
 Answer for Example 2

a) E-101 : Yearly Cost = $640,100/yr

b) E-102 : Yearly Cost = $62,100/yr
c) H-101 : Yearly Cost =$566,000/yr
d) C-101 : Yearly Cost = $27,000/yr
e) Cost of Steam : Yearly Cost = $52,400/yr
f) P-101 : Yearly Cost = $8,300/yr
2.6 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.