Robert Herry Son

18010184
BT 18
Short Answer Questions
1. In the general equation for determining the cost of manufacturing (COM),
Equation (8.2), one of the terms is 0.18OFCI, where FCI is the fixed capital
investment of the plant. "This term is included to cover the interest payment
on the loan for the plant." Is this statement true or false? Explain your answer.
2. Why is the number of operators per shift multiplied by approximately 4.5 to
obtain the total number of operators required to run the plant?
3. When estimating the cost of manufacturing (COMd) for a chemical process, the
overall COMd, may be estimated using only five individual costs. List these five
costs.
4. In Equation (8.2), the cost of raw materials, CRM, is multiplied by a factor of
1.23. The reason for this is that, in general, we expect that the estimated cost
of raw materials will be about 20% low and we add a correction factor of 1.23
to adjust for this. Do you agree with this explanation? If you do not, give
another reason for using the factor of 1.23.
5. In Equation (8.2), the cost of operating labor, COL , is multiplied by a factor of
2.73. One reason for 7. This is that the value of COL includes only plant
operators and not supervisory and clerical labor costs. Is this statement true or
false? What other factors (if any) account for the multiplication factor of 2.73?
6. Explain the difference between direct costs, fixed costs, and general
expenses. Give two examples of each
 Robert Herry Son
18010184
BT 18
Short Answer Answers
1. The statement is false, the term of 0.180 FCI has nothing to do with the
interest on capital investment. From the table 8.2 it can be seen that the costs
are based on the following FCI:
➔ Maintenance and repairs
➔ Operating supplies
➔ Local insurance and taxes
➔ Plant overhead costs
➔ Administration costs

2. It is multiplied by approximately 4.5 in order to get the total number of

operators required by the plant because it is assumed that a single operator is
able to work 5 shifts a week and 49 weeks per year.
Total number of operators = (365 days/year)(3 shifts/day) / (49
weeks/operator)(5 shifts/week) ≈ 4.5 operators/year

3. COMd = f
➔ FCI
➔ Operating labor
➔ Raw material costs
➔ Utility costs
➔ Waste treatment costs

4. No, I don't agree with the explanation stated that it is not the reason for the
factor of 1.23 multiplying CRM. The reason is that in the derivation of the 8.2
equation in the table 8.2 some of the costs are based on the calculation of
COMd. Therefore when all of the terms are added, the factor multiplying COMd
is 0.19 COMd.
COMd = (CRM + CWT + CUT) + 2.215 COL + 0.146 FCI + 0.19 COMd
0.18 COMd = (CRM + CWT + CUT) + 2.215 COL + 0.146 FCI
 Robert Herry Son
18010184
BT 18
= COMd = 1/0.081 ((CRM + CWT + CUT) + 2.215 COL + 0.146 FCI)
= 1.23 ((CRM + CWT + CUT) + 2.215 COL + 0.146 FCI)

5. The statement is false, because the 2.73 multiplier does include costs for
supervisory and clerical labor. The other factor is:
➔ Laboratory charges
➔ Plant overhead charges
➔ Administration costs

6. The difference is :
➔ Direct costs: costs that vary with the rate of production (raw materials &
utilities costs)
➔ Indirect costs: costs in the plant that do not vary with the rate of
production (depreciation, taxes, insurance)
➔ Fixed costs: costs that are independent of the changes in production
rate. Include property taxes, insurance, and depreciation which are
charged at constant rates even when the plant is not in the operations
(salaries, insurance, taxes, interest expenses, etc.).
➔ General expenses: costs associated with management level and
administrative functions not directly related to the manufacturing
process (administration, research and development)
 Robert Herry Son
18010184
BT 18
Problem

Answer:
a. Both options i and ii are not reliable, while option iii is the best option.
However if there is not much time to dig up more information on the new plant
then option i is probably the more suitable option than option ii unless the dye
and resin industries are known to have similar costs.
b. Equation 8.2 is used when there is no or little information about particular
processes or it is used if someone wants to estimate the manufacturing costs
for a broad range of processes or industries.
 Robert Herry Son
18010184
BT 18
Example

8.1 Answer:
Robert Herry Son
18010184
BT 18