Estimation of Total Production cost

Components of Total Production cost

Fixed charges

Direct Production cost

Plant Overhead cost

General Expenses

1. Fixed Charges
 Depreciation (10% of FCI for machinery)

Local property taxes (3-4% of FCI),

Insurance (0.4-1% of FCI),

Rent (8-12% of FCI)

2. Direct Production cost
 Raw material cost
 Operating labour
 Direct supervisory and clerical labor Utilities
 Maintenance and repairs
 Operating supplies
 Laboratory charges

3. General Expenses
 Administration cost
 Executive
Legal
Clerk
Communication
 Marketing costs

Sales
Advertising
Product distribution
 Research and development costs,
 Financing (interest)
4. Plant overhead cost
Overhead costs are those that are not directly related to the production
of goods or services, but are necessary for the operation of a business
Fringe benefits
Medical facilities
Pensions
Fire, safety, security
Waste treatment facility
Packaging, storage facilities
Restaurant and recreational facilities
Quality control, shipping, receiving facilities
• Depreciation: A measure of the decrease in value of property
with time
• SERVICE LIFE: The period during which the use of a property
is economically feasible
• SALVAGE VALUE: Salvage value is the net amount of money
obtainable from the sale of used property over and above any
charges involved in removal and sale
 The property may be sold as a junk to be used as a
manufacturing raw material again and the profit obtained
from this type of disposal is called scrap value or Junk value
Determining Depreciation
• Straight line method – it is based on the consideration of
value of the property decreases linearly with time
 Equal amounts are charged for depreciation each year
throughout the entire service life of the property.

d=
Where, d : annual depreciation
v : original value of the property
vs : salvage value of property
n : service life, years
Cont…

• The asset value (or book value) of the equipment at any time
during the service life may be determined from the following
equation
Va = V – a * d
Where, a : the number of years in actual use
Site Selection
Criteria's to select site for a manufacturing plant
Transportation
Source and cost of raw materials
Prospective market for products
Water source –quality and quantity
Site conditions
Climatic condition
Environmental impact
Expansion possibility
Local community considerations
Political strategy and community
Construction costs
Availability of operating labor
 Equipment Selection
• To purchase chemical processing equipment

Capacity/size
 Material of construction

 Mode of operation; batch or continuous

 Corrosion resistant

 Operation temperature and pressure

 Utility requirement

 Control mechanism

 Operation and maintenance

 Cost
 To manufacture or purchase equipment's
• Material of construction- metals and non- metals are the main
construction materials
Main Metallic fabrication materials
• Iron and steel - have good corrosion resistance. But they are
still susceptible to rust when it exposed to air and moisture for
longer time
• Stainless steel - These materials are high chromium or high
nickel-chromium alloys of iron containing small amounts of
other essential constituents. They have excellent corrosion-
resistance and heat-resistance properties.
Hastelloy - expensive but highly corrosion-resistant
material.
 This alloy shows 56 % nickel, 17 % molybdenum, 16 %
chromium, 5 % iron, and 4 % tungsten, with other constituent the
balance
 It is used in the form of valves, piping, heat exchangers, and
various types of vessels.

Copper and its Alloys - relatively inexpensive, possesses fair

mechanical strength, and can be fabricated easily into a wide variety of
shapes
 Copper alloys, such as brass, bronze, admiralty, and Muntz
metals, can exhibit better corrosion resistance and better
mechanical properties
Cont…
• Aluminum - light weight and relatively easy for fabrication. It
resists attack by acids because a surface film of inert hydrated
aluminum oxide is formed
• Lead - Pure lead has low creep and fatigue resistance, but its
physical properties can be improved by the addition of small
amounts of silver, copper, antimony
 Lead-clad equipment is in common use in many chemical
plants
• Nickel alloys, Siliver and tantalum are the commonly used metals
for construction of chemical processing equipments and parts
Non-metals

• Glass, carbon, stoneware, brick, rubber, plastics, and wood are

common examples of nonmetals used as materials of construction.
• Many of the nonmetals have low structural strength

Glass and Glassed Steel - lass has excellent resistance and is subject
to attack only by hydrofluoric acid and hot alkaline solutions
• A chief drawback is its brittleness and damage by thermal shock.
• Glassed steel combines the corrosion resistance of glass with the
working strength of steel
Brick and Cement Materials

• Can be used for many severely corrosive conditions, where high

alloys would fail
• Rubber and Elastomers - Natural and synthetic rubbers are used
as linings or as structural components for equipment in the
chemical industries
• Natural rubber - is resistant to dilute mineral acids, alkalies, and
salts, but oxidizing media, oils, benzene, and ketones will attack it
• Plastics - In comparison with metallic materials, the use of plastics
is limited to relatively moderate temperatures and pressures
 They are lightweight, are good thermal and electrical insulators, are easy to
fabricate and install, and have low friction factors
 Economical consideration in selection of material

• First cost of equipment or material often is not a good

economic criterion when comparing alternate materials of
construction for chemical process equipment.
Any cost estimation should include the following items:
 Total equipment or materials costs
Installation costs
Maintenance costs
Estimated life
Replacement costs