2.

0 Total Cost Estimation

2.1 Bare Module / Guthrie Method
Method of Guthrie is best carried out after an optimal process design has been
developed, complete with a mass and energy balance, equipment sizing, selection of materials
of construction, and development of a process control configuration as incorporated into a
P&ID. To apply this method, the f.o.b purchase cost of each piece of major equipment must be
estimated. Guthrie method involves the summation of estimation of module costs for the four
different modules listed below. To this summation is added a contingency and contractor fee,
in terms of a factor, to obtain the total permanent investment. An appropriate estimate of the
working capital is added to obtain the total capital investment. The equation for the total capital
investment cost by the Guthrie method is:

𝐶𝑇𝐶𝐼 = 𝐶𝑇𝑃𝐼 + 𝐶𝑊𝐶 = 1.18(𝐶𝑇𝐵𝑀 + 𝐶𝑠𝑖𝑡𝑒 + 𝐶𝑏𝑢𝑖𝑙𝑑𝑖𝑛𝑔𝑠 + 𝐶𝑜𝑓𝑓𝑠𝑖𝑡𝑒 𝑓𝑎𝑐𝑖𝑙𝑖𝑡𝑖𝑒𝑠 ) + 𝐶𝑤𝑐

2.1.1.1 Total bare-module cost, 𝑪𝑻𝑩𝑴

The total bare-module cost, 𝐶𝑇𝐵𝑀 refers to the summation of bare-module costs for all
items of process equipment, including fabricated equipment, process machinery, spares,
storage tanks, and surge tanks. Initial charge of catalyst is included with the corresponding
catalytic reactor cost. The total bare-module cost is as calculated in the following table.
Bare
Equipment Purchase Cost, Module Installer Cost,
Equipment
Code Cp (RM) Factor, CBM (RM)
FBM
Boiler H-101 1,109,003.50 2.19 2,428,717.67
Boiler H-102 342,732.61 2.19 750,584.42
Mixer M-101 52,184.02 3.05 159,161.26
Reactor R-101 1,007,793.87 4.16 4,192,422.50
Heat Exchanger E-101 285,521.51 3.17 905,103.19
Condenser E-102 346,174.55 3.17 1,097,373.32
Heat Exchanger E-103 20,785.80 3.17 65,890.99
Condenser E-104 474,983.70 3.17 1,505,698.33
Reboiler E-105 274,214.80 3.17 869,260.92
Blower C-101 12,183.81 2.15 26,195.19
Blower C-102 12,979.11 2.15 27,905.09
Blower C-103 11,711.83 2.15 25,180.43
Quench Tower V-101 7,458,450.90 4.16 31,027,155.74
Absorption Tower V-102 10,893,496.53 4.16 45,316,945.56
Stripping Tower V-103 2,738,662.30 4.16 11,392,835.17
Pump P-101 28,398.71 3.3 93,715.74
Pump P-102 23,959.94 3.3 79,067.80
TOTAL 25,093,237.49 99,963,213.32
2.1.1.2 Estimation of Site Development Cost, Csite

For grass-roots plant, costs for site preparation and development, Csite is 5% of CTBM.

𝐶𝑠𝑖𝑡𝑒 =0.05𝐶𝑇𝐵𝑀

=0.05×RM 99,963,213.32

=RM 4,998,160.67

2.1.1.3 Estimation of Building Cost, Cbuildings

Assume all the equipments are housed. Therefore, 20% of the total bare module cost, CTBM
will be taken into account for building costs.

𝐶𝑏𝑢𝑖𝑙𝑑𝑖𝑛𝑔𝑠 = 0.2𝐶𝑇𝐵𝑀
= 0.2× RM 99,963,213.32
=𝑅𝑀 19,992,642.67

2.1.1.4 Estimation of Offsite Facilities Cost, Coffsite facilities

5% of the total bare module cost, CTBM and cost of offsite utilities plant will be taken into
account for offsite facilities costs.

𝐶𝑜𝑓𝑓𝑠𝑖𝑡𝑒 =0.05𝐶𝑇𝐵𝑀+𝐶𝑈𝑡𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑃𝑙𝑎𝑛𝑡

=RM(0.05×RM114,997,769.70)+RM 5,746,724.55

=RM 10,744,885.22

2.1.2 Estimation of Total Permanent Investment Cost, CTPI

Total Permanent Investment,

𝐶𝑇𝑃𝐼 =1.18(RM114,997,769.70+ RM 5,749,888.50 + 𝑅𝑀 22,999,553.94+ RM

10,744,885.22)

=𝑅𝑀 160,124,704.20
2.1.3 Working Capital estimation, 𝑪𝒘𝒄
The working capital can be estimated at 15% of the total capital investment which is
also equivalent to 17.6% of the total permanent investment.

𝐶WC = 0.176 × 𝐶𝑇𝑃𝐼

= 0.176 × 𝑅𝑀 160,124,704.20
= RM 28,181,947.94

2.1.4 Total Capital Investment estimation, 𝑪𝑻𝑪𝑰

𝐶TCI = 𝐶TPI + 𝐶WC

= RM 160,124,704.20 + RM 28,181,947.94
= RM 188,306,652.1

2.2 Cost of Manufacture

The total cost of manufacture is the sum of direct manufacturing cost, fixed cost and
plant overhead costs.

2.2.1 Direct manufacturing costs

Direct manufacturing costs involves cost of raw materials, operating labor, direct
supervisory and clerical labor, utilities, maintenance and repairs, operating supplies, laboratory
charges, patents and royalties.

Direct manufacturing cost, CDMC = COL + CFeedstock + CUtilities

= RM 346,780 + RM 455,479,200 + RM5,746,724.55
= RM 461,572,704.60

2.2.1.1 Operating Labor Costs

To estimate all labor-related operations, it is necessary to estimate the number of
operators for the plant per shift and to account for three shift daily. Each shift operator works
40 hr per week and hence for each operator required during a 7(24) = 168-hr week, 4.2 shifts
must be covered. However, due to illness, vacations, holidays, training, special assignments,
overtime during startups, it is common to provide for 5 shifts for each operator required. To
estimate the number of operators required per shift, the process are divided into (1) feed
preparation system using separation steps, (2) reactor system, (3)vapor recovery system, (4)
liquid separation system, (5) solids separation and purification system, and (6) pollution
abatement system.
Table X.XX: Direct Operating Labor requirements for Chemical Processing Plants
Basis: Plant with Automatic Controls and 10-100 Ton/Day of Product

Based on the table X.XX, since our chemical plant are continuously operated, automatically
controlled, fluids-processing plant with a low-to-medium-capacity of 547.94 ton/day of
product, one operator/shift is assigned to each section. In the process of producing styrene, it
include feed preparation system using separation steps, reactor system, liquid separations
system and pollution abatement system. 4 operators per shift are required. Each shift, the
operator is paid for 40hr/week and 52 weeks/yr or a total of 2080 hr/yr. Therefore, the annual
cost of direct wages and benefits (DW&B) is obtained:
DW&B, RM/yr 𝑜𝑝𝑒𝑟𝑎𝑡𝑜𝑟 2080ℎ𝑟 𝑅𝑀30
=( ) (5𝑠ℎ𝑖𝑓𝑡𝑠) ( )( )
𝑠ℎ𝑖𝑓𝑡 𝑦𝑟 ℎ𝑟
3 𝑜𝑝𝑒𝑟𝑎𝑡𝑜𝑟𝑠 2080ℎ𝑟 𝑅𝑀10
=( ) (5𝑠ℎ𝑖𝑓𝑡𝑠) ( )( )
𝑠ℎ𝑖𝑓𝑡 𝑦𝑟 ℎ𝑟
2080ℎ𝑟 𝑅𝑀10
= (15 𝑜𝑝𝑒𝑟𝑎𝑡𝑜𝑟𝑠) ( )( ) = 𝑅𝑀 312000/𝑦𝑟
𝑦𝑟 ℎ𝑟

To obtain the total annual labor-related operation cost, O, direct salaries and benefits
for supervisory and engineering personnel at 15% of DW&B and operating supplies and
services at 6% of DW&B are added to DW&B. According to GFHCMHV, the average salary
of a production operater is RM 20,400/year. Hence the pay rate is RM10/hr.

Direct salaries and benefits = 0.15 x RM 312,000 = RM 46,800

Operating supplies and services = 0.06 x RM 312,000 = RM18,720
In addition, RM 25,324 /(operator/shift)-yr for technical assistance to manufacturing and
RM57000(operator/shift)-yr for control laboratory are added. Thus the other annual labor-
related operation costs are:

Technical assistance to manufacturing = 5 x RM 25,324 = RM 126,620

Control laboratory = 5 x RM 30,928 = RM 154,640

Summary

Operating labor cost (RM)

Direct salaries and benefits 46,800

Operating supplies and services 18,720
Technical assistance to manufacturing 126,620
Control laboratory 154,640
TOTAL 346,780

2.2.1.2 Waste Treatment

In wastewater, assuming all the organic material is dissolved in the water, the flow
rate for the effluent stream is 296000 kg/yr. Given that the cost of removal for wastewater
treatment is $0.22/kg of organic at year 1995. After using cost index, the cost of wastewater
treatment is $0.39/kg of organic removed at year 2017. After converting to MYR, it is
RM1.67/kg of organic removed.

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑤𝑎𝑠𝑡𝑒 𝑟𝑒𝑚𝑜𝑣𝑎𝑙, 𝐶𝑤𝑎𝑠𝑡𝑒 296000𝑘𝑔 𝑅𝑀1.67

=( )×( )
𝑦𝑟 𝑘𝑔
= 𝑅𝑀494320/𝑦𝑟

2.2.1.3 Raw Materials

Based on the water tariff rate in Malaysia, water tariff rate in Johor for industrial
purposes is at RM3.30/m3. The purchase costs for raw material ethylbenzene is at RM
4900/ton. Therefore, the total raw material costs:

Cost of n-butene = (RM4260/ton) x (13.5 ton/hr) x (7920hr/yr) = RM 455,479,200

2.2.1.4 Utilities

Based on section 1.3, the total utilities cost for the styrene production plant is:
RM5,746,724.55

2.2.2 Fixed costs

Fixed costs are expenses which are practically independent of production rate.
Expenditures for depreciation, property taxes, insurance, financing (loan interest), and rent are
usually classified as fixed costs. These costs, except for depreciation, tend to change due to
inflation. Because depreciation is on a schedule established by tax regulations, it may differ
from year to year, but it is not affected by inflation.

2.2.2.1 Financing

Interest is considered to be the compensation paid for the use of borrowed capital. A
fixed rate of interest is established at the time the capital is borrowed. Therefore, interest is a
definite cost if it is necessary to borrow the capital used to make the investment for a plant.
Annual interest rate amount to 5 to 10% of the total value of the borrowed capital. Therefore,
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔, 𝐶𝑓 = 0.075 × 𝐶𝑇𝐶𝐼
= 0.075 × 𝑅𝑀
= 0.075 X 188,306,652.1
=RM 14,122,998.91

2.2.2.2 Local Taxes

Annual property taxes for plant in highly populated area are ordinarily in the range of
2 to 4% of the fixed capital investment. In less populated areas, local property taxes are about
1 to 2% of the fixed capital investment. Therefore,

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐿𝑜𝑐𝑎𝑙 𝑇𝑎𝑥𝑒𝑠, 𝐶𝑇𝑎𝑥 = 0.015 × 𝐶𝑇𝑃𝐼

= 0.015 × 𝑅𝑀160,124,704.20
= 𝑅𝑀2,401,870.56

2.2.2.3 Insurance
Insurance rates depend on the type of process being carried out in the manufacturing
operation and on the extent of available protection facilities. These rates amount to about 1%
of the fixed-capital investment per year.
Cost of Insurance, CInsurance = 0.01 × CTPI
 = 0.01 × RM160,124,704.20
= RM 1,601,247.04

2.2.2.4 Depreciation
Depreciation is a charge to the revenue resulting from an investment in real property. It
is entirely reasonable that invested principle should be recovered by the investor and that
project revenues be charged to pay that principal. A deduction for depreciation maybe claimed
each year for property with a limited useful life that’s used in a business for income production.
Based on SIDER, by calculating the total capital depreciation, the depreciation for this
plant is calculated by the summation of the direct plant depreciation and the allocated plant
depreciation.
The total depreciation capital, CTDC = 1.18 [ CTBM + Csite + Cbuildings + Coffsite]
= RM 160,124,704.20

The direct plant depreciation = 0.08 [ CTDC – 1.18 Callocated ]

= RM 11,795,659.17

The allocated plant depreciation = 0.06 [ 1.18 Callocated ]

= RM 760,737.87

therefore, Cdepreciation = RM 11,795,659.17 + RM 760,737.87

= RM 12,556,397.05 / year

Fixed Cost = Cdepreciation + Clocal taxes + Cinsurance + Cfinancing

= RM(12,556,397.05 + 2,401,870.56 + 1,601,247.04 + 14,122,998.91)
= RM 30,682,513.56

2.2.3 Plant Overhead Costs

This costs are for hospital and medical services; general plant maintenance and
overhead, safety services, payroll overhead including social security and other retirement plans,
medical and life insurance, and vacation allowances, packaging, restaurant and recreation
facilities, salvage services, control laboratories, property protection, plant superintendence,
warehouse and storage facilities, and special employee benefits. These costs are similar to basic
fixed costs since they do not vary widely with charges in production rate. The plant overhead
costs for chemical plants is about 50 to 70% of the total expenses for operating labor,
supervision and maintenance.
𝑃𝑙𝑎𝑛𝑡 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐶𝑜𝑠𝑡𝑠, 𝐶𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 = 0.06 × 𝐶𝑂𝐿
= 0.06 × 𝑅𝑀346780/𝑦𝑟
= 𝑅𝑀20,806.80/𝑦𝑟

Cost of Manufacturing,
COM = Direct Manufacturing Cost + Fixed Cost + Plant Overhead Cost
= RM ( 461,572,704.60 + 30,682,513.60 + 20,806.80 )
= RM 492,276,024.96

2.3 General Expenses

Generally, general expenses involved in a company includes administrative expenses,
distribution and marketing expenses, research and development expenses. Based on R.K.Sinnot,
it usually account of 20 to 30% of direct manufacturing costs. Therefore,
𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠, 𝐶𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 = 0.25 × 𝐶𝐷𝑀𝐶
= 0.25 × 𝑅𝑀 461,572,704.6
=115.393,176.20

2.4 Total Production Costs

The total production costs consists of sum of cost of manufacturers and general
expenses.

𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡𝑠, 𝐶𝑇𝑃𝐶 = 𝐶𝑂𝑀 + 𝐺𝐸 =

2.5 Summary of Manufacturing Costs

Table XXX shows the Cost of Manufacture (COM) which include Direct Manufacturing
Costs, Fixed Costs and plant overhead costs, General Expenses and Total Production Costs.
Cost Equation Value (RM
million/yr)
Total Capital Invesemtemt 𝐶𝑇𝐶𝐼 188,306,652.1
Direct Manufacturing Costs
Operating Labor 𝐶𝑂𝐿 346780
Raw Materials 𝐶𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠
Utilities 𝐶𝑈𝑡𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑪𝑫𝑴𝑪 = 𝐶𝑂𝐿 + 𝐶𝑊𝑎𝑠𝑡𝑒 + 𝐶𝑅𝑎𝑤 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝐶𝑈𝑡𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Fixed Costs
Financing 0.075 × 𝐶𝑇𝐶𝐼
Local Taxes 0.015 × 𝐶𝑇𝑃𝐼 160,124,704.20
Insurance 0.01 × 𝐶𝑇𝑃𝐼
TOTAL 0.1 × 𝐶𝑇𝐶𝐼
Plant Overhead Costs 0.06 × 𝐶𝑂𝐿
General Expenses
Administrative
Distribution and
marketing
Research and
Development
TOTAL
Cost of Manufacture 𝐶𝑂𝑀 = 𝐷𝑖𝑟𝑒𝑐𝑡 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝐶𝑜𝑠𝑡𝑠
+𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠 + 𝑃𝑙𝑎𝑛𝑡 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐶𝑜𝑠𝑡𝑠