Estimation of Total Product

Cost
 Product Cost
1) Manufacturing Cost
(Operating or production cost)
a) Interpretation of variables
b) Fixed cost
c) Overhead cost

2) General Expenses
 Product Cost
Product cost based on

a) Daily basis
b) Unit of product basis
c) Annual basis

Annual Basis
1) the effect of seasonal variations is smoothed out,
2) plant on-stream time or equipment operating factor is
considered,
3) it permits more-rapid calculation of operating costs at less
than full capacity,
4) it provides a convenient way of considering infrequently
occurring but large expenses such as annual turnaround
costs in a refinery.
Manufacturing costs
Total Product
Cost
General Expenses
Direct Production
Cost

Fixed Charges Manufacturing

Cost
Plant Overhead Cost
Administrative Expenses

Distribution & Marketing General

Expenses
Expenses
Research & Development
 Manufacturing Cost
 Raw materials
 Operating labor
 Operating supervision
 Steam
 Electricity
 Fuel
 Refrigeration
 Water I Direct
 Power and utilities


Maintenance and repairs
Operating supplies
Production


Laboratory charges
Royalties (if not on lump-sum
Cost
basis)
 Catalysts and solvents
 Manufacturing Cost

 Depreciation
 Taxes (property) Fixed Charges
 Insurance
 Rent Electricity
 Manufacturing Cost

 Medical
 Safety and protection
 General plant overhead
 Payroll overhead
 Packaging
 Restaurant Plant
 Recreation
 Salvage
Overhead Cost
 Control laboratories
 Plant superintendence
 Storage facilities
Direct Production
Cost

Fixed Charges Manufacturing

Cost
Plant Overhead Cost
 Executive salaries
 Clerical wages
 Engineering and legal Administrative
costs Expenses
 Office maintenance
 Communications
 Sales offices
 Salesmen expenses
 Shipping
 Advertising
Distribution &
 Technical sales service Marketing
Expenses

Research & Development

Administrative Expenses

Distribution & Marketing General

Expenses
Expenses
Research & Development
Manufacturing costs
Total Product
Cost
General Expenses
 Direct Production Cost
 Raw materials- 10-60% of total product cost
cost of material + Transportation cost (10%
of material cost)
 Operating labor - 10-20% of total product cost
 Direct Production Cost
 Operating Supervision & Clerical Assistance-
15% of cost of operating labor
 Utilities – depend on process
 Steam
 Electricity
 Fuel
 Refrigeration
 Water
 Power and utilities
 Direct Production Cost
 Maintenance and repairs – 2-20% of equipment
cost
 Operating supplies – 15% of cost of
maintenance & repair
- Charts, lubricants, test chemicals etc
 Laboratory charges – 10-20% of Operating
labors
 Royalties (if not on lump-sum
b a s i s ) – 0-6% of total product cost
 Catalysts and solvents
 Fixed Charges
Fixed Charges – 10-20% of total product cost
 Depreciation
 Taxes (property) – 2-4% of fixed capital
investment
 Insurance - 1% of fixed capital
investment
 Rent Electricity
 Financing- Interest paid- 5-10% of total
borrowed capital
 Plant Overhead Cost
Plant Overhead Cost- 50-70% of total expenses for
operating labor, supervision & maintenance
 Medical
 Safety and protection
 General plant overhead
 Payroll overhead
 Packaging
 Restaurant
 Recreation
 Salvage
 Control laboratories
 Plant superintendence
 Storage facilities
 General Expenses

Administrative Expenses – 15-25% of operating labor

Distribution & Marketing Expenses – 2-20% of total

product cost

Research & Development – 5% of total product cost