Manufacturing Cost Estimation

Instructor: Dr. Chandra Mouli M.R.

Chemical Engineering Department

 Process Economics

How do we decide whether a given process is a

good investment?

•Determine the capital cost

•Determine the operating cost
•Judge the economic merit by combining the
capital and the operating costs
 Outline
• Estimation of costs
– Direct, fixed, and general expense costs
– Operating labor
– Utility costs
– Raw materials
– Waste treatment costs
– others
 Estimation of Manufacturing Costs

• Direct Costs
– Vary with production rate but not necessarily directly
proportional
• Fixed Costs
– Do not vary with production rate but relate “directly” to
production function
• General Expenses
– Functions to which operations must contribute –
overhead burden
 Direct Costs
• Raw Materials • Maintenance and
• Waste Treatment Repairs
• Utilities • Operating Supplies
• Operating Labor • Laboratory Charges
• Supervisory and Clerical • Patents and Royalties
Labor
 Fixed Costs
• Depreciation – covered as a separate topic in
Engineering Economics Course
• Local Taxes and Insurance
• Plant Overhead Costs
 General Expenses
• Administration Costs
• Distribution and Selling Costs
• Research and Development
 General Expenses
• Administration Costs
• Distribution and Selling Costs
• Research and Development
 Manufacturing Costs
• Table 6.1
– Description of Items
• Table 6.2
– Factors for Estimating Costs

* We relate (historically) the relationship between

items in Table 6.1 to Direct Costs A (RM) , B (WT) , C
(UT) , D (OL), and FCI of Plant
 Manufacturing Costs - examples
• Maintenance and Repairs
– 2 – 10 % FCI
– Proportional to Size of Plant
• Supervisory and Clerical Labor
– 10 – 25 % COL
– Proportional to Operating Labor
• Depreciation
– some % of FCI
Estimation of Direct Manufacturing Costs
6 6
Estimation of Fixed Manufacturing Costs
Estimation of General Manufacturing Costs
Manufacturing Costs
 What data do we need to estimate
Operating Costs?

• Fixed Capital Investment (FCI) (Total Module

Cost or Grass Roots Cost)
• Cost of Operating Labor (COL)
• Cost of Utilities (CUT)
• Cost of Waste Treatment (CWT)
• Cost of Raw Materials (CRM)
Example:
The following cost information was obtained from a design for a
92,000 tonne/year nitric acid plant.

Fixed capital Investment: $11,000,000

Raw Material Cost: $7,950,000/yr
Waste 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
cost category given in Table 6.2.
 Summary
• Basic approach is to account for all the costs
associated with the operation of a chemical process.
An estimate of all these costs can be made with a
knowledge of
– FCI
– C OL
– C UT From these get COMd –C WT
– C RM