4 manufacturing cost estimation
TRANSCRIPT
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CHAPTER 4ESTIMATION OF MANUFACTURING COSTS
Sub chapter covered
2.1 Factors Affecting Manufacturing Costs
2.2 Estimating Labor Cost2.3 Estimating Raw Material Cost
2.4 Yearly Costs and Stream Factors
2.5 Estimating Utility Cost2.6 Estimating Waste Treatment Cost
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2.1 Factors Affecting Manufacturing Costs
Direct Manufacturing Costs Represent operating expenses that vary with production rateExample of direct manufacturing costs
Fixed Manufacturing Costs
Costs that are independent of changes in production rateExample of fixed manufacturing costs
General Expenses Represent an overhead burden that is necessary to carry outbusiness functions
Example of General Expenses
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So, how to evaluate the cost of manufacture?
Generally, the cost of manufacture can be determinedusing the equation below:
COM = DMC + FMC + GE
Where:COM = Cost of ManufactureDMC = Direct manufacturing Costs
FMC = Fixed Manufacturing CostsGE = General Expenses
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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
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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 column2 of the table, the resulting equations for the individualitems are calculated in column 3
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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 establishthese constants. The method presented, should onlybe used when no other information on these costs isavailable
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Example 1
The following cost information was obtained from a design for a92,000 tonne/year nitric acid plant.
Fixed Capital Investment $ 11,.000,000
Raw Material Cost $ 7,950,000/yrWaste 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 costcategory and estimation
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Answer for Example 1
a) $15,610,000/yr or $170/tonne
b) Percentage of manufacturing costDirect Costs : 70%
Fixed Costs : 13%
General Expenses : 17%
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2.2 Estimating Labor Cost
The technique to estimate operating laborrequirement is based on the approach given byUlrich.
The operator requirements for various processequipment is Table 2.2
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The table provides with the number ofoperators required per equipment unit per shift.
Assumption being made on an average single
operator working in chemical plant whichoperates 24 hrs/day, 365 days/year and 3shifts/day.
For costing purpose a single operator iscalculated as equivalent to 4.5 operators toensure the plant operate properly
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NoL=(6.29+31.7P2+0.23Nnp)0.5
NOL=number of operators per shift
Nnp=SUM(No. of equipment x Operators
per equipment per shift )No. of equipment obtained from PFD;
Operators per equipment per shift
obtained from table 2.2
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Operating Labor = 4.5 NOL
Labor cost = Operating labor xcost of labor in a year
Cost of labor in a year will begiven in example
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Example 2
Estimate the operating labor requirement andcosts for the toluene hydrodealkylation facilityshown in figure 1.3 and 1.5. Cost of labor in ayear is $52,900 according to Burea Labor and
Statistics, 2006.
Answer:
Nnp= 11Nol= 2.97
Operating labor = (4.5)(2.97)=13.4
Labor Costs (2006) = 13.4 x 52900= $468,000/yr
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2.3 Estimating Raw Material Costs
Raw Materials - are resources that will be madeinto finished products.
In normal practice, the cost of raw materials canbe estimated by using the most current price
data. The cost of raw material generally fluctuate due
to many factors, and some might vary withseasonal pricing trend. Thus, it is advisable to
look at average price over a period of severalmonths.
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2.4 Yearly Costs and Stream Factors
Manufacturing and associated costs areoften 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
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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 ofBenzene
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
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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
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2.5 Utility Costs
Utility is the basic things needed to producesomething.
The difficult part is to estimate the cost of
fuel which will impact utilities such aselectricity, steam and thermal fluids.
The example of utilities cost provided by
Off-Sites for a Plant with Multiple ProcessUnits
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Most often, utilities take part in energy, workand heat exchange activities in the plant.
This can be measured either by inspection or
by doing a simple heat and energy balancearound each equipment.
This data can also be used to determine thecost of utilities.
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Example 4
Estimate the quantities and yearly costs of the appropriate utilities for thefollowing pieces of equipment on the toluene hydrodealkylation PFD(Figure 1.3). You may assume a stream factor of 0.95 and that all thenumbers 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 bargsteam discharging to atmospheric pressure
f. P-101, Toluene Feed Pump
The duty on all of the units can be found in the following tables.
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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
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2.6 Estimating Waste Treatment Cost
The cost of waste treatment in current practiceis very significant due to stringentenvironmental regulations.
It requires the designer/engineer to ensure
sufficient budget is allocated to the treatmentof 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.
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