4 manufacturing cost estimation

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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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