Plant Design and Economics

Work Sheet -2
Problem 1.
The purchaged cost of a shell-and-tube heat exchanger with100 ft2 of heating surface was
$3000 in 1980.What will be the purchased cost a similar heat exchanger with 200 ft2 of
heating surface in 1980 if the purchased –cost-capacity exponent is 0.6 for surface area
ranging from 100 to 400 ft2? If the purchased-cost-capacity exponent for this type of
exchanger is 0.81 for surface areas ranging from 400 to 2000 ft2 ,what will be the purchased
cost of a heat exchnager with 1000 ft2 of heating surface in 1985? The Marhall and Swift
index values are 560 in 1980 and 790 in 1985.
Problem 2.
A company has production costs equal to 50% of total annual sales and fixed charges,
overhead, and general expenses equal to $200,000.If management proposes to increase
present annual sales of $800,000 by 30% with a 20% increase in fixed charges, overhead,
and general expenses,
i) What annual sales dollar is required to provide the same gross earnings as the present
plant operation?
ii) What would be the net profit if the expanded plant were operated at full capacity with an
income tax on gross earnings fixed at 34%?
iii) What would be the net profit for the enlarged plant if total annual sales remained the same.
iv) What would be the net profit for the enlarged plant if the total sales actually decreased
to $700,000?
Problem 3.
A process plant making 2000 tons per year of a product selling for $0.8 per kg has annual
direct producttion costs of $2,000,000 at 100% capacity and other fixed costs of $700,000.
i) What is the fixed cost per kg at the break-even point?
ii) If the selling price of the product is increased by 10%,what is the dollar increse in net
profit at full capacity if the income tax rate is 34% of gross earnigs.
 Problem 4.
The annual direct production costs for a plant operating at 70 percent capacity are
$280,000 while the sum of the annual fixed charges, overhead costs, and general expenses
is $200,000.
i) What is the break-even point in units of production per year if the total annual
sales are $560,000 and the product sells at $40 per unit?
ii) What were the annual gross earnings and net profit for this plant at 100 percent capacity
when corporate income taxes required a 15% tax on the first $50000 of annual gross
earnings,25% on gross annual earnings of $50000 to $75000,34% on annual gross
earnings above $75000, and 5% on gross earnings from $100,000 to $335,000?
Problem 5.
A rough rule of thumb for the chemical industry is that $1 of annual sales require $1 of
fixed capital investment. In a chemical processing plant where this rule applies, the total
capital investment is $2,500,000 and the working capital is 20 percent of the total capital
investment. The annual total product cost amounts to $1,500,000. If the national and
reginal income-tax rates on gross earnings total 36 percent, determine the following:
a) Percent of total capital investment returned annually as gross earnings.
b) Percent of total capital investment retuned annually as net profit.
Problem 6.
A plant of capacity 7500 tons per year a product selling at $6100 per ton has been set up.
Total capital employed is $12,500,000 and plant operates for 8400 hours per year with
8 hour a shift. Requirements per ton of product are,1500 kg of raw materials at $ 2.6 per
kg., 280 kwh of electricity at $ 0.3 per kwh, 5000 kg of steam at $ 13 per 1000 kg., 40 m3
of water at $ 1 per 1 m3, 100 m3 of gas at $ 6 per 120 m3.The labor charges are at $ 400
per shift. Overheads amount to 50% of labor charges. Supervision costs are $ 200,000
per year. Maintenance is 10% per year of total capital. Depreciation is also 10% per year
of total capital. Distribution and sales cost $ 200 per ton and general overheads are 10%
 of sales revenue.
Calculate the gross profit when the plant is operating at 50% of capacity. Assume labor and
Supervision costs are fixed at full capacity.
Problem 7.
The original value of a heat exchanger is $ 22000, completely installed and ready for use.
Its salvage value is estimated to be $ 2000 at the end of a service life estimated to be
10 years. Determine the asset (Book value) value of the equipment at the end of
5 years using: a) Straight-line method. b) Declining-balance method.
Problem 8.
A piece of equipment originally costing $ 40000 was put into use 12 years ago. At the time
the equipment was put into use ,the service life was estimated to be 20 years and the
salvage value at the end of the service life was assumed to be zero. On this basis ,a straight-
line depreciation fund was set up. The equipment can now be sold for $ 10,000,and a more
advanced model can be installed for $ 55,000. Assuming the depreciation fund is available
for use, how much new capital must be supplied to make the purchase?

Short questions
1. List out the factors to be considered in planning the plant layout.
2. Give the factor that influence in deciding the ‘Master plot plan’
Briefly write about plant terrain.
3. Mention the steps involved in deciding ‘Unit plot plans’.
4. How the Fixed capital cost is estimated quickly? Give details of “LANG” method.
5. Specify how the working capital is calculated.
6. What is ‘depreciation’? How it is calculated by ‘Declining balance method’?
7. With a graph show how the profitability, sales and production capacity are related.
What is break-even point?
8. Write briefly on the ‘primary factors‘ to be considered in plant location.
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