production cost

7.4. Production CostProduction cost is cost of plant's operations. These costs usually divided into two categories, are fixed costs and variable costs. Fixed operating costs are expenses that tend to remain the same whether the business or device is inactive or operating at full capacity. And, variable costs are cost fluctuate based on a variety of factors. 7.4.1. Variable Cost7.4.1.1. Direct Material CostDirect material is a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production. Direct material is a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production. There are three kinds of direct material in succinate acid plant, feed stock which is molasses, cell (Action succinogenes), micronutrient (KH2PO4 and K2HPO4), CO2, H2SO4, HCl, and active carbon. Molasses, the main of raw material our plant, are supplied from PG Gunung Madu (Terusan Nunyai, Central Lampung), PG Bunga Mayang (Bumi City, Lampung), and PG Cinta Manis (Ogan Illir, South Sumatera) which are sugar plant. CO2, are used in fermentation, are supplied from PT. Indo Lampung Distillery. Both of them are are not far from Lampung so the transportation are easier and faster. While, other material like H2SO4, HCl and micronutrient are suplied from PT. SURYAMAKMUR AGUNGLESTARI (Jakarta). Because of place PT. SURYAMAKMUR AGUNGLESTARI in Jakarta so we must calculate cost of transportation of their. Costs in Table 7.4 includes the cost of transportation required to deliver materials to succinic acid plant.

Table 7.4. Direct Material CostMaterialAmount usedTotal supply/yearUnitPrice Per unit Purchase Price

Molasses62.540kg/day20.638.200Kg$ 0.15$ 3.095.730

H2SO41.800kg/day594.000Kg$ 0.16$ 94.941

Cell70kg/day23.100Kg$ 1.000$ 23.100.000

Micronutrient3.560kg/h1.174.800Kg$ 3,30$ 3.876.840

CO215L5.000Ton$ 100$ 500.000

HCl65.000kg/day21.450.000Kg$ 0,12$ 2.571.326

Active Carbon1.100kg/day363.000Kg$ 0,40$ 145.049

Mg(OH)216.020kg/day5.286.600Kg$ 0,60$ 3.171.960

Total$ 36.555.846

(Source : Private data)7.4.1.2. Direct LaborDirect labor is type of work that is directly associated with the production of a good or service. It does not include tasks accomplished by managers, supervisors, or others who focus more on administrative and organizational tasks. Any employee performing tasks that have to do with the actual assembly or creation of the products produced in the plant would be considered direct labor. Machine operators as well as those who work on the machines are directly involved in the production process, since their efforts allow the machines to produce the goods that are ultimately sold to customers. By contrast, a shift supervisor, while very important to the consistency of the operation, would be considered indirect labor, since his or her contribution to the production process does not include actually producing the products.Estimates of the number of plants operators needed per shift are based on the type and arrangement of the equipment, the multiplicity of units, the amount of instrumentation and control for the process, whether solids are handled, whether the process is continuous or batch-operation, and company policy in establishing labor requirements, particularly as it relates to operator units. Table below will explain direct operating labor requirements to help us in determine the number of operator needed.Table . Number of Operator NeededEquipmentUnitsOperator/unit/shiftOperator/shift

Pre-treatment212

Fermentor12112

Heat Exchanger180.254.5

Decolorizer10.10.1

Rotary Dryer10.50.5

Filter, vacuum10.250.25

Ball Mill10.050.05

Crystallizer10.50.5

Mixer10.10.1

Centrifuge20.20.4

Compressor20.10.2

Reaktor acid20.51

Steam Turbine Generator133

Carbon Filter10.10.1

Clarifier10.20.2

Deaerator10.20.2

Boiler10.30.3

Gas Holder10.10.1

Evaporator10

Total25.5

Total Shift4

Total of Operator102

(Source : Private Data)102 operators are paid for 168-hr/week and 52-weeks/year or a total of 8736-hr/year. The annual cost of direct wages and benefits (DW&B) is obtained from:

According to Lampung Gubernatorial Decree 2014 (SK Gubernur provinsi Lampung), the minimum wage 2014 in Lampung is IDR 1,390,000. There are three types of worker that will directly relate to our operation, besides operator, the other to will be technical and labor. The wages of labor will be least higher than UMK Lampung which is IDR 1,600,000. The engineering personnel or technicians will receive IDR 1,800,000 and operator will receive IDR 2,300,000. Therefore, the amount of operators wages and benefit (DW&B) is about 0.34 per hour. In that case, the annual cost of direct wages and benefits (DW&B) is obtained as much as $899,640.Annual DW&BEq. 7.9$ 899.640

Direct salaries and benefit15% of DW&B$ 134.946

Operating supplies & services6% of DW&B$ 53.978

Technical assistance$2,281/(operator/shift)-year$ 7.020

Control laboratory$2,028/(operator/shift)-year$ 5.760

Total labor-related operation annual cost$ 1.101.344

7.4.1.3. Utilities CostUtility bills actually can be considered both as fixed and variable expense. If a manufacturing process heavily dependent on electricity begins to use more electricity because its sales have increased creating a demand for more products, then electricity is a variable expense. In this manufacture, most of equipment depends a lot to electricity in their running process. a. Hot and cold utilityFor first cost for water is multiplying water needs and price of water. Based on information from Dumai Indutrial Area, price of water is Rp4000,-/ m. Water need of makeup water per day is 8 m3. Here are cost for water need. Table. Hot and Cold Utility CostWaterPriceNeeds (Kg/day)Cost

Start up waterIDR 4.000IDR 987.273IDR 3.949.092.000

Makeup waterIDR 4.000IDR 98.727IDR 394.909.360

TOTALIDR 4.344.001.360

$ 382.272

(Source : Privat data)b. Electrity Utility CostElectricity fulfill is divided into 2 parts, from steam turbine and from PLN. Here is need of electricity. PLNElectricityPriceNeeds (kWH/year)Cost

Plant and domesticIDR 8038.098.440IDR 6.503.047.320

Total$ 572.268

SteamFuelPriceNeeds (L/year)Cost

$ 7530.770$ 2.307.750

Total$ 2.307.750

Total utility cost by sum-up all cost from water, electricity cost and fuel, we could get the total amount of utility cost as much as $ 2.690.022.7.4.2. Fixed Cost7.4.2.1. Indirect LaborIndirect labor costs are running a company and selling a product or service versus the actual labor-related costs to make that product or service. Here is the information of indirect labor cost in our plant.Table. Indirect Labor CostPositionStrataAmountSalary/person/month, IDRSalary/year, IDR

PresidenT DirectorScholar122.000.000264.000.000

DirectorScholar617.000.0001.224.000.000

ManagerScholar1515.000.0002.700.000.000

Head of plant managerScholar410.000.000480.000.000

Process EngineerScholar47.000.000336,000.000

DoctorScholar36.000.000216.000.000

SupervisorDiploma45.000.000240.000.000

NurseSTM/SMK/D364.500.000324.000.000

ForemanSMK/STM14.500.00054.000.000

StaffSMK/STM353.500.0001.470.000.000

SecuritySMP102.500.000300.000.000

Cleaning ServiceSD/SMP201.600.000384.000.000

Total109Total (IDR)7.992.000.000

Total ($)670.000

(Source : Private data)7.4.2.2. Safety and Enviromental CostSafety and environment cost cover all expense of Equipment Health and safety (EHS aspect in our plant. Below is table of cost Equipment Health and safety (EHS) :a. Safety CostTable. Safety CostType of EquipmentPriceQuantityCost

Fire AlarmIDR 2.030.00020IDR 40.600.000

Fire HydrantIDR 4.534.00015IDR 68.010.000

Fire ExtinguisherIDR 1.904.00030IDR 57.120.000

Safety ShowerIDR 11.748.0008IDR 93.984.000

Lightning ProtectionIDR 3.000.00010IDR 30.000.000

PERSONAL PROTECTION EQUIPMENT

Safety HelmetIDR 30.000300IDR 9.000.000

Face ProtectionIDR 60.000250IDR 15.000.000

GoggleIDR 30.000300IDR 9.000.000

Dust MaskIDR 40.000300IDR 12.000.000

Ear FlagIDR 8.000300IDR 2.400.000

BootsIDR 210.000300IDR 63.000.000

Safety ShoesIDR 322.000300IDR 96.600.000

GlovesIDR 63.000200IDR 12.600.000

Safety BeltIDR 288.000100IDR 28.800.000

SpectaclesIDR 42.000200IDR 8.400.000

RaincoatIDR 440.000100IDR 44.000.000

TOTALIDR 590.514.000

$51,965

(Source : Private data)b. Enviroment CostEnvironment cost covers the expense for waste handling in our plant. The important properties of wastewaters generated by succinate acid production from molasses: BOD5 120 ppm COD 140 ppm TSS 90 ppm pH 4Related to wastewater treatment, we estimated that the most matter parameter to handling is the organic compound at water. Table. Enviroment CostCOD 140 ppm

Mass Flow (kg/h)500

Organic Removed (kg/h)29,9

Annual Organic removed (kg)236.966,4

price /kg$ 0.30

Total Price$ 71.090

(Source : Private data)Total safety and environment cost by sum-up all cost from safety and environment cost, we could get the total amount as much as $ 131.015.7.4.2.3.DepreciationDepreciation costs are costs caused by the use of the property so that the point value decreases over time. Depreciation is calculated per device and depends on the value of salvage value and lifetime of items. Depreciation can divided into two kinds, there are assets in form of main process equipments and supporting equipments, suchs as office requirements. Both of the equipments depreciation are calculated using Declining Balance (DB) to the provisions, as follows: 1. DB 100% applicable to the equipments aftter 10 years 2. DB 150% applicable to equipments from year 1-103. R = 1/n for 100% DB) or R = 1.5 / N (if for 150% DB). Declining balance method which we use as method to obtained depreciation of some equations, which is:dmax = 2(1n)dt = dmax(1-dmax)tBVt = BV(t-1)(1-dt)(t-1)Where the value of dmax means maximum depreciation rate, dt means depreciation rate for t-year, BVt means book value for t-year and this year of depreciation. From the equation above, we can obtain depreciation rate of each equipment along of operations year. Book value and salvage value of both equipments are shown in Table 1.11 below :Table 1.1 Salvage value and depretiation of the equipmentsEquipment ProfileQty.SpareNumber of UnitN (year)Cost after Index ($)Salvage Value

CodeName

DecanterV-1021125$160.356$34.141

Mixing TankM-1011120$76.031$16.188

Decalcification TankR-1012220$319.034$67.926

Seed FermenterR-2014425$1.507.378$320.936

Main FermenterR-2028820$5.042.029$1.073.499

Acidification TankR-3014420$797.485$169.793

Molasses Storage TankTT-1018820$264.931$56.406

Treated Storage Molasses TankTT-1028825$634.646$135.123

Sulfuric Acid Storage TankTT-1031125$93.620$19.933

Intermediate Storage Ferm. TankTT-2034420$441.953$94.096

Product Storage TankTT-3021120$80.299$17.096

Magnesium Hydroxide BinTT-2011120$12.691$2.702

Rotary Dryer Belt ConveyorC-3011120$24.859$5.293

Ball Mill Belt ConveyorC-3021120$12.621$2.687

Product Storage ConveyorC-3031120$22.947$4.886

Centrifugal PumpJ-10111220$17.108$3.642

















Molasses Heat SterilizerE-1011120$42.874$9.128

Concentrated Mash CoolerE-3011120$40.818$8.690

Air Blower JB-20111220$45.105$9.603

CO2 BlowerJB-20211220$105.041$22.364

Decolorization TankV-3011120$43.518$9.265

ClarifierV-1011120$143.723$30.600

Forced Circulation CrystallizerK-3011120$582.001$123.914

Direct Heat Rotary Dryer DE-3011120$400.257$85.219

Debris Cell CentrifugeFF-3011120$356.622$75.928

SA Crystal CentrifugeFF-3021120$147.554$31.416

Plate and Frame FilterP-3011120$144.098$30.680

Air FilterFG-2011120$55.162$11.745

EvaporatorFE-3013320$1.185.544$252.414

Ball MillBM-3011120$77.096$16.415

Steam BoilerE-40111220$2.244.892$477.960

Cooling TowerE-4021120$235.757$50.195

ChillerE-4031120$142.564$30.353

Wastetreatment Facilities (Primary + Secondary)1125$2.009.430$427.828

Total SV$3.814.781

While depreciation calculation for each year (annuity) result shown in table below:Table. 1.12 Annual Depreciation CalculationYearDepreciationAnnuity FactorDepreciation Annuity Worth

1$1.113.1780,0354$39.406,50

2$1.042.9550,0354$36.920,61

3$977.4610,0354$34.602,12

4$916.3330,0354$32.438,19

5$859.2440,0354$30.417,24

6$805.8980,0354$28.528,79

7$756.0210,0354$26.763,14

8$81.9650,0354$2.901,56

9$665.7030,0354$23.565,89

10$624.8260,0354$22.118,84

11$579.0330,0354$20.497,77

12$544.2910,0354$19.267,90

13$511.6330,0354$18.111,81

14$480.9350,0354$17.025,10

15$452.0790,0354$16.003,60

16$424.9540,0354$15.043,37

17$399.4570,0354$14.140,78

18$375.4900,0354$13.292,35

19$352.9600,0354$12.494,78

20$331.7830,0354$11.745,12

21$331.8760,0354$11.748,41

22$293.1630,0354$10.377,97

23$275.5230,0354$9.753,51

24$259.0390,0354$9.169,98

25$243.4970,0354$8.619,79

Total$484.955,11

(source : private data)

Therefore the depreciation value annually is $484.955,11 for both main process and supporting equipments7.4.2.4. Maintenance CostMaintenance activities include inspection activities, lubrication, and the improvement or reparation of existing damage, and adjustment or replacement of parts or components contained in the facility. Maintenance performance consists of three parts, the treatment of major equipment, maintenance of the plant and office building, and care for support equipment. In determining maintenance cost, we refer to Sinnott,2000.

So, the maintenance cost that are needed for PT. Indo Suksinat Abadi is $ 6.037.663,81. 7.4.2.5. Laboratory CostLaboratory is used to experiment and analyze both quality of the raw materials used and the products of succinic acid. In addition, the laboratory is also used in research and development of our factory. Activities in this laboratory need cost too. To estimate the cost, we use Sinnoot, 2000 that:

So, the laboratory cost that are needed for PT. Indo Suksinat Abadi is $ 211.238,40. 7.4.2.6. SupervisionSupervisor is someone who handles who produce and or serving. Supervisor is responsible for the people who supervised mainly the quality and quantity of products and services. For this supervison required supervision costs. Like maintenance, to estimate the cost of supervision used Sinnott, 2000 that:

So, the laboratory cost that are needed for PT. Indo Suksinat Abadi is $ 211.238,40. 7.4.2.7. Plant OverheadsIn the company is also required plant overhead to anticipate if there are things that are needed sudden. To estimate the cost of plant overhedas used Sinnott, 2000 that:

So, the laboratory cost that are needed for PT. Indo Suksinat Abadi is $ 211.238,40. 7.4.2.8. Capital ChargeCapital charge are needed to paid installment loan capital our plant annually. To estimate the capital charge used Sinnott, 2000 that:

So, the capital charge that are needed for PT. Indo Suksinat Abadi is $ 6.037.663,81.7.4.2.9. InsuranceInsurance costs paid covers the cost of buildings and equipment owned insurance company (the insurance company's assets) and employee insurance. To estimate the cost of insurance cost used Sinnott, 2000 that:

So, the laboratory cost that are needed for PT. Indo Suksinat Abadi is $ 6.037.663,81.7.4.2.10. Local taxOur factory is located in Lampung area where there are local taxes are billed annually. To estimate the cost of local tax used Sinnott, 2000 that:

So, the laboratory cost that are needed for PT. Indo Suksinat Abadi is =$ 1.207.532,76.7.4.2.11. Royalties CostLike above, to estimate the cost of rotalties cost used Sinnott, 2000 too that:

So, our company annually will expense $ 603.766,83for royalties.7.4.3. Annual CostThe total annual production cost equals the sum of the cost of manufacture which is include variable and fixed cost, and also general expenses. General expense refer to activities that are conducted by the central operations of company, perhaps, at the corporate headquarters and are financed from profits made by the company from operating plants. General expense comprises five categories: sales expense covers all the cost involves in selling the products, including expenses of the sales office, advertising, traveling salesmen, containers, and shipping. Sales expense is estimated as much as 20% of total cost of manufacture. Research (direct and allocated) expense covers both research and development cost for new products or manufacturing methods. Administrative expense covers those top-management and general administrative activities. For 100% capacity, the annual production cost is :Table. Annual Production CostFixed Cost

Maintenance$6,037,663.81

Indirect Labor$660,000.00

Depreciation$484.955,11

Safety and Environment cost $ 131.015

Laboratory Cost$211,238.40

Supervision$211,238.40

Plant Overheads$528,096.00

Capital Charge$6,037,663.81

Insurance$603,766.38

Local Tax$1,207,532.76

Royalties$603,766.38

Total$16,100,965.94

Variable Cost

Direct Material$20,638,200.00

Miscelleanous Material$28,896,500.00

Direct Operating Labor$1,056,192.00

Utilities$3,174,612.00

Total$53,765,504.00

Direct Production Cost$69,866,469.94

General Expenses

Sales expense$13,973,293.99

Administrative$803,464.40

Research and Development$3,842,655.85

Management Incentive Compensation$1,047,997.05

Total$19,667,411.29

Annual production Cost$89,533,881.23

(Source : Private data)Because of the dependability of variable cost on production capacity, we should make a plant capacity development plan beforehand. Capacity development has long been seen by its practitioner as the how of development. Capacity development can strengthen the plant by improving the domains of knowledge and information related to market. It can be an early evaluation for a new plant in planning while running the company. For the production size development, we have to do it sequentially. At the first & second year, the production capacity of the plant is not likely 100%, because we want to make the plant be ready before the full production capacity achieved. At the first year, we just use 50% from production capacity and at the second, we use 70% from production capacity. Then, at the third year, we increase the production capacity to 90%, before we reach the full production capacity starts from the fourth year. The plan can be saw at table below. Table. Plant Annual Direct Production CostCapacity PlanVariable CostFixed CostAnnual Direct Production Cost

YearCapacity (bpy)Direct MaterialDirect LaborUtilities

150%8100$10,319,100.00$528,096.00$1,587,306.00$16,100,966$28,535,467.94

270%11340$14,446,740.00$739,334.40$2,222,228.40$16,100,966$33,509,268.74

390%14580$18,574,380.00$950,572.80$2,857,150.80$16,100,966$38,483,069.54

4~20100%16200$20,638,200$1,056,192$3,174,612$16,100,966$40,969,969.94

(Source : Private data)

production cost

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