ChE

522: Chemical Engineering Plant Design and Economics Lecture Notes

ESTIMATION OF CAPITAL INVESTMENT
Capital costs – costs associated with construction of a new plant or modification to an existing chemical manufacturing
plant

FACTORS AFFECTING INVESTMENT AND PRODUCTION COSTS
• Sources of Equipment • Company • Operating Time and Rate of Production
• Price Fluctuations Policies • Governmental Policies

Capital Investments
Total Capital Investment (TCI) = Fixed Capital Investment (FCI) + Working Capital (WC)
A. Fixed Capital Investment - capital needed to supply the necessary manufacturing and plant facilities for start-up.
It is a once-only cost that is not recovered at the end of the project life, other than the scrap value
1. Manufacturing fixed-capital investment (DIRECT COSTS)
• represents the capital necessary for the installed process equipment with all auxiliaries that are needed
for complete process operation
• Examples: Expenses for equipment piping, instruments, insulation, material for installation, labor for
installation, foundations, and site preparation
2. Nonmanufacturing fixed-capital investment (INDIRECT COSTS)
• Fixed capital required for construction overhead and for all plant components that are not directly
related to the process operation
• Examples: administrative building , and other offices, warehouses, laboratories, transportation,
shipping, and receiving facilities, shops, and other permanent parts of the plant
B. Working Capital
• Additional investment needed, over and above the FCI, to start the plant up and operate it to the point
when income is earned
• Example: Raw materials and supplies carried in stock, Finished products in stock and semi-finished
products in the process of being manufactured, cash kept on hand for monthly payment of operating
expenses, such as salaries, wages, and raw-material purchases

Types of Capital Cost Investment

1. Order of Magnitude Estimate (Ratio estimate) - based on similar previous cost data; probable accuracy of
estimate is within ±30%
2. Study Estimate (factored estimate) is based on knowledge of major equipment items; probable accuracy of
estimate is within ±30%
3. Preliminary estimate ( budget authorization estimate, scope estimate) – cost based on preliminary material and
energy balances, P&IDs, equipment lists and material specifications, duty rating and sizing of all process
equipment, and instrumentation and control devices; probable accuracy of estimate is within ±20%
4. Definitive estimate (project control estimate) is based on almost complete data, but before completion of
drawings and specifications; probable accuracy of estimate is within ±10%
5. Detailed Estimate (contractor’s estimate) - requires completed engineering drawings, specifications, and site
surveys. Process and mechanical datasheets are prepared and vendors' quotations for selected equipment items
are obtained; probable accuracy of estimate is within ±5%

COST COMPONENTS IN CAPITAL INVESTMENT
Grass Roots Plant – a complete plant erected on a new site. Investment includes all costs of land, site development,
battery-limit facilities, and auxiliary facilities.

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
Battery limit - a geographical boundary defining the coverage of a specific project (see table 6-3 for values of typical
percentages of FCI values for direct and indirect cost segments for additions to existing facilities)

1. PURCHASED EQUIPMENT - composed of process equipment, raw materials handling and storage equipment,
and finished products handling and storage equipment

Estimating Purchased Equipment Cost
a. Vendor quote
• Most accurate ; based on specific information
b. Use previous cost on similar equipment and scale for time and size
• Less accurate ; beware of large extrapolation; beware of foreign currency
c. Use cost estimating charts and scale for time
• Reasonably accurate; Convenient

A. EFFECT OF TIME: COST INDEXES
• A cost index is an index value for a given time showing the cost at that time relative to a certain base time
• Method used for updating cost data applicable at a past date to costs that are representative of conditions at a
later time:

𝑰𝟐
𝑪𝟐 = 𝑪𝟏 where C= purchased cost
𝑰𝟏
I= Cost index
1 = refer to base time when cost is known
2 = refer to time when cost is desired
• Does not take into account all factors such as technological advances or local conditions
• Fairly accurate if the period involved is less than 10 years

Types of Cost Indexes:
The most-used cost indices for the chemical, petrochemical, and refining industries for relating the cost level of a given
year or month to a reference point are the following:

1. Chemical Engineering Plant Cost Index

• Probably the most commonly used cost-adjusting index
• Its breakdown component costs apply to plants and plant equipment/systems.
2. Marshall and Swift Equipment Cost Index
• Commonly used for process industry equipment and machinery, plus costs for installation, fixtures, office
furniture and other minor equipment
3. Nelson Farrar Cost Index
• This is generally suited to petroleum refining plants
4. Engineering News Record Construction Cost Index – estimates of relative construction at various dates

B. EFFECT OF SIZE / CAPACITY
• This method should not be used beyond a tenfold range of capacity
• The two pieces of equipment must be similar with regards to type of construction, materials of construction,
temperature and pressure operating range and other pertinent values

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
𝑪𝑨 𝑨𝑨 𝒏
=
𝑪𝑩 𝑨𝑩

Where: A = equipment cost attribute (capacity)
C = Purchased cost
N = cost exponent
a = refers to equipment with required attribute
b = refers to equipment with the base attribute
n = varies with type of equipment ( see Table 6-4 for typical exponents for equipment)
****Typically, n = 0.4 – 0.8
Often the six-tenths factor rule (6/10)’s Rule is used where n = 0.6

COST COMPONENTS IN CAPITAL INVESTMENT (cont’d..)

2. PURCHASED EQUIPMENT DELIVERY

• f.o.b. – free on board – purchaser pays the price
• factors for freight cost: weight and size of equipment, distance from source to plant, method of
transport
• For predesign estimates, a delivery allowance of 10% of the purchased equipment cost is recommended
3. PURCHASED EQUIPMENT INSTALLATION
• Installation costs includes costs of labor, foundations, supports, platforms, construction expenses, etc
• See Table 6-5 for the general range of installation costs as a percentage of the purchased equipment
cost for various types of equipment
• Total cost for labor and materials required for insulating equipment and piping in ordinary chemical
plants is approximately 8 to 9 percent of the delivered-purchased equipment cost (equivalent to
approximately 2% of TCI)
4. INSTRUMENTATION AND CONTROL
• Includes instrument cost, installation labor cost and expenses for auxiliary equipment and materials
• This also depends on the total amount of control required
• May amount to 8 to 50% of the total delivered equipment cost
5. PIPING
• Covers labor, valves, fittings, pipe, support and other items involved in the complete erection of all
piping used directly in the process (see Table 6-6 for estimates of piping cost for various types of
chemical processes)
6. OTHER COSTS
• Electrical systems
• Buildings – labor, materials and supplies needed in the erection of the building, plumbing, heating,
lighting, ventilation are included (see Table 6-7)
• Yard improvements – fencing, grading, roads, sidewalks, railroad siding, landscaping, and other parts of
yard improvements
• Service Facilities – steam supply, water, power, compressed air, and fuel; waste disposal, fire protection
miscellaneous items (shops, first aid, cafeteria facilities)
• Health, safety and environment functions – functions that are integrated into the process design itself
(pollution prevention and techniques in the minimization of pollutants should be part of the design
strategy)
• Land – includes survey fees

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
•Engineering and Supervision - costs for construction design and engineering, computer based drawings,
purchasing, accounting, construction & cost engineering, travel, communications, home expense, plus
overhead cost
• Legal expenses – legal costs from land purchases, equipment purchase and construction contracts
• Construction expenses – indirect plant cost, field expense or construction cost (construction tools &
rentals, temporary personnel office located at the construction site, payroll, others)
• Contractor’s fee
• Contingencies – to be used for unexpected events such as floods, storms, price changes, strikes, design
changes, errors, other unforeseen expenses.

METHODS FOR ESTIMATING CAPITAL INVESTMENT
Method A: DETAILED –ITEM ESTIMATE
• Based on complete drawings and specifications
• Priced from current cost data or from quotations from vendors and suppliers
• Estimates of installation costs are determined from accurate labor rates, efficiencies, and employee-hour
calculation
• A maximum accuracy within approximately ±5% of the actual capital investment can be obtained with this
method
Method B: UNIT COST ESTIMATE
• Accurate records of previous costs are needed
• Frequently used for preparing definitive and preliminary estimates, also requires detailed estimates of
purchased price obtained either from quotations or index-corrected cost records and published data
Method C: PERCENTAGE OF DELIVERED EQUIPMENT COST
• Commonly used for preliminary and study estimates
• Requires determination of the delivered-equipment cost
• The other items included in the total direct plant cost are then estimated as percentages of the delivered-
equipment cost
• Additional components of the capital investment are based on average percentages of the total direct plant
cost, total direct and indirect plant costs, or total capital investment
• Table 6-9 is used for estimation based on delivered equipment cost for process plant additions (battery limit)
• Factors for estimation for grass roots plants:
GRASS ROOTS PLANTS
DETAILS Solid Processing Solid- Fluid Processing Fluid Processing
Equipment, delivered 1.0 1.0 1.0
Installed 0.19 – 0.23 0.39 – 0.43 0.76
Piping 0.07 – 0.23 0.30 – 0.39 0.33
Structural steel foundations, reinforced concrete 0.28
Electrical 0.13 – 0.25 0.08 – 0.17 0.09
Instruments 0.03 - 0.12 0.13 0.13
Battery-limits building and service 0.33 - 0.50 0.26 - 0.35 0.45
Excavation and site preparation 0.03 – 0.18 0.08 – 0.22
Auxiliaries 0.14 – 0.30 0.48 – 0.55 Included above
Total physical plant 2.37 2.97 3.04
Field expense 0.10 – 0.12 0.35 – 0.43
Engineering 0.35 – 0.43 0.41
Direct plant costs 2.48 3.73 3.45
Contractor’s fees, overhead, profit 0.30 – 0.33 0.09 – 0.17 0.17
Contingency 0.26 0.39 0.36
CFC: total fixed-capital investment 3.06 4.27 3.98

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
Method D: “LANG” FACTORS FOR APPROXIMATION OF CAPITAL INVFSTMENT
• Used quite frequently to obtain study estimates
• Recognizes that the cost of a process plant may be obtained by multiplying the basic equipment cost by some
factor to approximate the capital investment
• These factors vary depending upon the type of process plant being considered
• Tables 6-10 contains percentages which are rough approximations that hold for the types of process plants
indicated, and can be used as Lang factors
𝒏

𝑪 = 𝑭𝒍𝒂𝒏𝒈 𝑪𝒑
𝒊0𝟏
Where: C = capital cost of the plant
Cp = purchased cost for the major equipment unit
n = total number of individual units
Flang = Lang factor
Table 6-10. Lang Factors, page 254 Additional Lang Factors:
Type of Plant Factor for FCI Factor for TCI Type of Equipment Factor
Solid processing plant 4.0 4.7 Fractionating Columns, pressure 4
Solid-Fluid Processing plant 4.3 5.0 vessels, pumps and instruments
Fluid- processing plant 5.0 6.0 Heat exchangers 3.5
Compressors 2.5
Fired Heater 2
Method E: POWER FACTOR APPLIED TO PLANT-CAPACITY RATIO

• method for study or order-of-magnitude estimates

• relates the fixed-capital investment of a new process plant to the fixed-capital investment of similar previously
constructed plants by an exponential power ratio:
𝐶2 = 𝐶𝑓4 𝑅 6
Where: Cn = fixed capital investment of the new facility
C = fixed capital investment of the constructed facility
R = capacity of the new facility / capacity of the old facility
fe = cost index ratio at the time of cost Cn to that at the time of C
x = 0.6 – 0.7 for many process facilities (found in Table 6-11)

Method F. INVESTMENT COST PER UNIT OF CAPACITY
• order-of-magnitude estimate of the fixed-capital investment for a given process is obtained by multiplying the
appropriate investment cost per unit of capacity by the annual production capacity of the proposed plant
Method G. TURNOVER RATIO
• A rapid evaluation method suitable for order-of-magnitude estimates
ABCDD E22FGH IGH4D (G22FGH NBCLFTOKC2 BGO4)(GQ4BVG4 WF2KO D4HHK2V NBKT4)
𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜 = =
JK64L MGNKOGH P2Q4DOR42O JMP
• The reciprocal of the turnover ratio is sometimes defined as the capital ratio or the investment ratio
• Turnover ratios of up to 4 are common for some business establishments and some are as low as 0.2.
• For the chemical industry, as a very rough rule of thumb, the ratio can be approximated as 0.5

OTHER METHODS OF ESTIMATING CAPITAL INVESTMENT

A. Use of Cost Indexes and Six-tenths factor rule (similar to estimating purchased equipment cost)

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
B. BARE MODULE COST FOR EQUIPMENT - represents the sum of direct and indirect costs, as shown in the ff tables:
TABLE 1. Factors Affecting the Capital Cost of Chemical Plants
Factor Symbol Comments

1. Direct Project Expenses

a. Equipment f.o.b. cost C p Purchased cost of equipment at manufacturer's site

b. Materials C M Includes all piping, insulation and installation fireproofing, foundations and structural
supports, instrumentation and electrical, and painting associated with the equipment

c. Labor C L Includes all labor associated with equipment and material installing mentioned above

2. Indirect Project Expenses

a. Freight, insurance, and CFIT transportation costs for shipping equipment and materials to the plant site, all insurance
taxes on the items shipped, and any purchase taxes that may be applicable

b. Construction overhead C O Includes all fringe benefits such as vacation, sick leave retirement benefits; etc.; labor
burden such as social security and unemployment insurance, etc.; and salaries and
overhead for supervisory personnel

c. Contractor engineering C E salaries and overhead for the engineering, drafting, and project management personnel on
expenses the project

3. Contingency and Fee

a. Contingency CCont A factor to cover unforeseen circumstances. These may include loss of time due to storms
and strikes, small changes in the design, and unpredicted price increases.

b. Contractor fee CFee Fee varies depending on the type of plant and a variety of other factors

4. Auxiliary facilities

a. Site development CSite land; grading and excavation of the site; installation and hook-up of electrical, water, and
sewer systems; and construction of all internal roads, walkways, and parking lots

b. Auxiliary buildings CAux administration offices, maintenance shop and control rooms, warehouses, and service
buildings

c. Off-sites and utilities COff raw material and final product storage & loading & unloading facilities; all equipment
necessary to supply required process utilities; central environmental control facilities; and
fire protection systems

Table 2. EQUATIONS FOR EVALUATING DIRECT, INDIRECT, CONTINGENCY & FEE COSTS

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes

• The equation used to calculate the bare module cost for each piece of equipment is
CBM = CP⁰FBM⁰
Using Table 2 and the above equations: FBM = [ 1 + αL + αFIT + αOαL + αE ] [ 1 + αM ]
Where :
ü CBM = Bare Modulus Cost (direct and indirect cost for each unit)
ü Cp⁰ = Purchased Cost for base conditions (equipment made of the most common material, usually
carbon steel (CS) & operating at near ambient pressures)
ü FBM⁰ = Bare Module Cost Factor (multiplication factor to account for auxiliary buildings, offsites & utilities
plus specific materials of construction (FM) & operating pressure(FP)– see Table 2 of notes)
o Fp = pressure factor (= 1 for 1 bar)
o FM = material of construction factor (=1 for CS)
ü The superscript ° is used to denote base condition factor (i.e, carbon steel and ambient pressure operation).

•
For Heat Exchangers, Process vessels, and pumps : CBM = CP⁰FBM = CP⁰(B1 + B2FMFP) ; FBM⁰ = B1 + B2
ü B1 and B2 are factors that are dependent on equipment-type (Values are given in Table 3)
ü Material Factor, FM, for these equipment are obtained from Table 4.

Table 3. Constants for Bare Modulus Factor for Heat Exchanger, Process Vessel and Pumps



















Table 4. Material Factors for Some Equipment
A. For Floating Head Heat Exchangers

Shell Material Tube Material Material Factor, FM Shell Material Tube Material Material Factor, FM
Carbon steel (CS) Carbon steel (CS) 1.00 Carbon Steel (CS) Nickel Alloy (Ni) 2.80
Carbon Steel (CS) Copper (Cu) 1.25 Nickel Alloy (Ni) Nickel Alloy (Ni) 3.80
Copper (Cu) Copper (Cu) 1.60 Carbon Steel (CS) Titanium (Ti) 7.20
Carbon Steel (CS) Stainless Steel (SS) 1.70 Titanium (Ti) Titanium (Ti) 12.00
Stainless Steel (SS) Stainless Steel (SS) 3.00

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes

B. For Sieve Trays & Demister Pad

CS SS Ni- CP = 235 + 19.80D + 75.07D2 ;
N trays 1 4 7 10 >20
Material alloy C⁰BM = CPNFBMFq
Fq 3.0 2.5 2 1.5 1.0
Trays 1.2 2.0 5.0 D = diameter of vessel (m)
Demister - 1.2 4.2 N = number of trays
Pad
Fq = quantity factor based on the no. of trays in the vessel

C. For Process Vessels Material CS SS Clad SS Ni Clad Ni Ti Clad Ti
F M 1 2.5 4 4.5 9.8 4.9 11

Example on Bare Module Costing:
1. The purchased cost for a carbon steel heat exchanger operating at ambient pressure is $10,000. For a heat
exchanger module given the following cost information:
Item % of Purchased Equipment Cost
Equipment 100.0
Materials 71.4
Labor 63.0
Freight 8.0
Overhead 63.4
Engineering 23.3
Using the information given above, determine the equivalent cost multipliers given in Table 5.8 and the following:
a. Bare module cost factor, F⁰BM
b. Bare module cost, CBM

SOLUTION:

Item % of Purchased Cost Multiplier Value of Multiplier

Equipment Cost

Equipment 100.0 1.0

Materials 71.4 α M 71.4 / 100 = 0.714

Labor 63.0 α L
0.63/(1+0.714)= 0.368

Freight 8.0 αFIT 0.08/(1+0.714)= 0.047

Overhead 63.4 α O 0.634/(0.368)(1+0.714)= 1.005

Engineering 23.3 α E 0.233/(1+0.714) = 0.136

a. F⁰BM = [ 1 + αL + αFIT + αOαL + αE ] [ 1 + αM ]
F⁰BM = (1 + 0.368 + 0.047 + (1.005)(0.368) + 0.136)(1 + 0.714) = 3.291

b. CBM = CP⁰FBM⁰
CBM = (3.291)($10,000) = $32,910

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 ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes

Estimation of Revenue
Annual Sales Revenue = Σ (sales of product)(product sales price)

Factors affecting revenue:
1. Annual Production Rate
• Established as a fraction or percentage of the design capacity of a process
• During the first year operation (start-up), it is common in preliminary economic studies to use production rate of
50% of the plant capacity
• For subsequent years, the design annual capacity of the plant is used as the actual annual production rate, with an
allowance for downtime ( 10 to 20 percent; hence, actual operating time is approximately 300-330 days per year
2. Product Price - established by a market study

Other sources of revenue: obsolete equipment, recovery of working capital, sale of other capital items

ESTIMATION OF TOTAL PRODUCT COST

Total Product Cost = Manufacturing Costs + General Expenses

I. Manufacturing Costs – expenses directly connected with the manufacturing operation or the physical equipment
of a process plant itself
1. Direct Production Cost (variable production cost) - include all expenses directly associated with the
manufacturing operation
a. Raw materials (transportation, unloading, etc.)
b. Direct Operating Labor
c. Operating supervision (supervisory and clerical labor directly connected with manufacturing)
d. Power and utilities (steam, electricity, fuel, refrigeration, water)
e. Maintenance & repairs
f. Operating supplies h. Catalysts & solvents
g. Laboratory charges i. Royalties ( if not on lump-sum basis)

2. Fixed Charges (expenses which remain practically constant from year to year; do not vary widely with
changes in production rate)
a. Depreciation c. Insurance e. Financing (loan interest)
b. Taxes (property) d. Rent

3. Plant Overhead Costs (do not vary widely with changes in production rate)
a. Hospital and medical services
b. Safety Services and protection
c. General plant maintenance & overhead
d. Payroll overhead (including pensions, vacation allowances, SSS, life insurance)
e. Packaging i. Control laboratories
f. Restaurant & recreation facilities j. Plant superintendence
g. Salvage services k. Warehouse & storage facilities
h. Property protection l. Other employee benefits

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 ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
II. General Expenses

1. Administrative Costs
a. Executive salaries
b. Clerical Wages
c. Engineering & legal costs
d. Office maintenance (upkeep on office buildings)
e. General communications

2. Distribution and Marketing costs - expenses incurred in the process of selling & distributing the various
products
a. Sales offices d. advertising
b. Salesmen expenses e. Technical sales service
c. Shipping (includes materials handling, containers)

3. Research and Development Cost – expenses incurred by progressive concern which wishes to remain in a
competitive industrial position. Includes salaries, wages, special equipment, research facilities, & consultant
fees related to developing new ideas or improved processes

BASIS OF TOTAL PRODUCTION COST

1. Annual basis
• Effect of seasonal variations is smoothed out
• Plant on-stream time or equipment – operating factor is considered
• Permits more rapid calculation of operating costs at less than full capacity
• Provides a convenient way of considering infrequently occurring but large expenses such as annual
turnaround costs is a refinery
2. Daily Basis
3. Unit-of-product basis

***** USE TABLE 6-18 for ESTIMATION OF TOTAL PRODUCT COST (showing Individual components)****

ALTERNATIVE METHOD OF ESTIMATING TOTAL PRODUCT COST
Factors Affecting the Cost of Manufacturing a Chemical Product

1. Direct Manufacturing Cost (DMC) – costs representing expenses that vary with production rate
2. Fixed Manufacturing Cost (FMC) - Costs that are independent from changes with production rate. They
include property taxes, insurance and depreciation that charged at constant rate even when the plant Is not
operating
3. General Expenses (GE) – costs that represent an overhead burden that is necessary to carry out the business
functions. They include management, sales, financing and research functions. General expenses seldom vary
with production level. However, items such as R&D, and distribution and selling may decrease if extended
periods of low production levels occur

Evaluation of Manufacturing Costs: Cost of Manufacture (COM) = DMC + FMC + GE

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
Table 5. Factors Affecting the Cost of Manufacturing (COM) for a Chemical Plant

Factor Description of Factor
1. Direct Cost Factors that vary with the rate of production
A. Raw Materials Costs of chemical feedstock required by the process.
Flow rates obtained from the PFD
B. Waste Treatment Costs of waste treatment to protect the environment
C. Utilities Costs of utility streams required by process. Includes but not limited to:
a. Fuel gas, oil, and/or coal
b. Electric power
c. Steam (all pressures)
d. Cooling water
e. Process Water
f. Boiler Feed Water
g. Instrument Air
h. Inert gas (nitrogen), etc.
i. Refrigeration
Flow rates for utilities found on the PFD/PIDs
D. Operating Labor Costs of personnel required for plant operations
E. Direct Supervisory and Cost of administrative / engineering and support personnel
Clerical Labor
F. Maintenance and Repairs Costs of labor and materials associated with equipment maintenance
G. Operating Supplies Costs of miscellaneous supplies that support daily operation not considered to
be raw materials. Examples include: chart paper, lubricants, miscellaneous
chemicals, filters, respirators, and protective clothing for operators, etc.
H. Laboratory Charges Costs of routine and special laboratory tests required for product quality
control and troubleshooting
I. Patents and Royalties Costs of using patented or licensed technology

2. Fixed Cost Factors not affected by the level of production
A. Depreciation Costs associated with the physical plant (buildings, equipment, etc.) Legal
operating expenses for tax purposes
B. Local taxes and Insurance Costs associated with property taxes and liability insurance. Based on plant
location and severity of the process
C. Plant Overhead Costs Catch-all costs associated with the operation of auxiliary facilities supporting
(sometimes referred to as factory the manufacturing process. Costs involve: payroll and accounting services, fire
Expenses) protection and safety services, medical services, cafeteria and any recreation
facilities, payroll overhead and employee benefits, general engineering, etc.
3. General Expenses Costs associated with management level and administrative activities not
directly related to the manufacturing process
A. Administrative Costs Costs for administration. Includes salaries, other administration, buildings, and
other related activities.
B. Distribution and Selling Costs of sales and marketing required to sell chemical products. Includes
Cost salaries and other miscellaneous costs.
C. Research and Development Costs of research activities related to the process and product. Includes salaries
and funds for research related equipment and supplies, etc.





Table 6. Multiplication Factors Estimating Manufacturing Cost

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ChE 522: Chemical Engineering Plant Design and Economics Lecture Notes
Typical Range of
COST ITEM Typical Value
Multiplying Factors
A. Direct Manufacturing Cost
1. Raw Materials CRM
2. Waste Treatment CWT
3. Utilities CUT
4. Operating Labor COL COL
5. Direct supervisory & clerical labor (DSC) (0.1 – 0.25) COL 0.18 COL
6. Maintenance and repairs (M&R) (0.02 – 0.1) FCI 0.06 FCI
7. Operating supplies (0.1 – 0.2)(M & R) 0.009 FCI or 0.15 M&R
8. Laboratory charges ( 0.1 – 0.2 )COL 0.15 COL
9. Patents and Royalties (0 – 0.06)(COM) 0.03 COM
TOTAL DIRECT MANUFACTUTING COSTS CRM + CWT + CUT + 1.33 COL + 0.03 COM + 0.069 FCI
B. Fixed Manufacturing Costs
1. Depreciation 0.1 FCI* 0.1 FCI*
2. Local taxes and Insurance (0.014 – 0.05)FCI 0.032 FCI
3. Plant overhead costs (0.5 – 0.7)(COL + DSC + M&R) 0.708 COL + 0.036 FCI
TOTAL FIXED MANUFACTURING COSTS 0.708 COL + 0.168 FCI
C. General Manufacturing Expenses
1. Administration cost 0.15 (COL + DSC + M&R) 0.177COL + 0.009 FCI
2. Distribution and Selling Costs ( 0.02 – 0.2 ) COM 0.11 COM
3. Research and Development 0.05 COM 0.05 COM
TOTAL GENERAL MANUFACTURING EXPENSE 0.177 COL + 0.009 FCI + 0.16 COM
COST OF MANUFACTURING (COM) COM = CRM + CWT + CUT + 2.215 COL + 0.190 COM + 0.246 FCI
Or COM = 0.304 FCI + 2.73 COL + 1.23 (CRM + CWT + CUT)
* Depreciation Cost is covered in a separate lesson. The use of 10% of FCI is a crude approximation at best

COM without depreciation, COMd = 0.18FCI + 2.73 COL + 1.23 (CRM + CWT + CUT)

Problem: The following cost information was obtained from a design for a 92,000 tons/year nitric acid plant
Fixed Capital Investment …………………………………. $ 11,000,000
Raw Materials Cost …………………………………………. $ 7,950,000 / yr
Waste treatment cost ……………………………………… $ 1,000,000 / yr
Utilities ……………………………………………………………. $ 356,000 / yr
Direct Labor Cost ……………………………………………… $ 300,000 / yr

Determine: a. Manufacturing Cost in $/yr and $/ton of nitric acid production
b. The percentage of manufacturing cost resulting from each cost category given in Tables 5 and 6.

Gross Profit, Net Profit, and Cash Flow

Gross Profit/ Gross Earnings (g) = Product Sales Revenue – Total Product Cost

Gross Profit with depreciation (G) = Product Sales Revenue – Total Product Cost – Depreciation

Net Profit / Net Earnings (N) = Gross Profit – Income Tax

Cash Flow returned to the Capital Reservoir = Net Profit + Depreciation

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