Experiment No.

10
Aim: Estimation of Process cost.

Introduction:
In an industry where standardized products are produced through a standard set of
processes, the estimation becomes simple. Oil refining, chemical production, production
activities of paper mill, flour milling, cement production etc. are the areas where this types of
estimate is used. Its objective is to estimate the cost of each stage of production. This method of
estimation indicates production cost estimation of the products by involving various stages of a
production process. The estimate of time for production, material consumed, power, light and
heating is prepared for each stage activities. For this purpose process cost estimation sheet is
used.

Process sheet is the summary of cost estimation for certain period say one month. The
operating charges are noted in it pertaining to the following details.
1. The transfer cost from the previous operation.
2. The cost incurred by each production operation showing materials, labour and
overheads in separate column.

Process Cost Estimation Sheet

Estimating Period: ...........................................................................................................
Process stage - 1 Process stage - 2
Labour Over Labour Labour
Date Material Hour Head Material Hour O.H. Material Hour O.H.

Summary: Stage - 1 Rs. Total Rs.

Materials ............
Labour ............
Overhead ............ ............
Stage - 2
Materials ............
Labour ............
Overhead ............ ............
Estimated process cost. Rs. ..........
Estimated production ...........
(No. of units)
Estimated cost per unit. Rs. ..........

Procedure & Steps of Process Cost Estimation:

The systems of diesel generating set are as under.
1. Fuel storage and supply system.
2. System for injecting fuel in a diesel engine.
3. Air supply system.
4. Cooling system.
5. Lubrication system.
6. Starting system.
7. Governing system.
 The thermal efficiency of diesel generating set reduces with the increase in load on it and
its specific fuel consumption is increase. Following costs are considered to estimate power
generation cost of a diesel generating set.
1. Interest & depreciation of capital investment.
2. Fuel costs.
3. Cost of lubricating oil.
4. Fixed and running maintenance costs.
5. Labour costs.
6. Overhead costs.
Power produced at Thermal Power Plant:
Following costs are considered to estimate the power cost in a thermal power plant. For
thermal power station costs of land, building, equipments, transmission lines & distributor lines
are considered. Again in sub-stations & other expenses needs capital investments. Fixed cost &
running or variable cost is included in the total cost of power generation.

Cost estimation per pouch for pouch packaging:

Cost elements of pouch packaging are as under.
1. Cost of goods packed in the pouch.
2. Cost of pouch material.
3. Cost of packaging the pouch.
a. Labour cost.
b. Interest & depreciation of packing machine.
c. Power cost.
4. Overheads.

Cost Estimation per Unit Weight of Ice Production of an Ice Plant:

Ice plants are popular for producing ice on commercial basis. Ice consumption has gone
high as it is used in chemical industries, food preservation and day to day consumption. A
commercial type of ice-plant is shown in fig. Ice-canes are used for producing ice. Pure water is
filled in each ice canes. A tank is filled with brine-solution of solution chloride (Nacl), and water.
The canes filled with pure water are placed in this tank. Freezing point of brine-solution is 0° C.
This brine absorbs heat from the pure water and transforms the pure water into ice. The heat from
the brine solution goes to the evaporator. Ice plant operates as per vapour compression system
uses Ammonia (NH3) as refrigerant.
In 24 hours at 0° C, the cooling load or refrigerating effect transforming water into ice is
called 1 ton refrigeration.
1 ton refrigeration = 211 kJ / min
= 12660 kJ / hr.
= 3.516 kW

Cost Elements of an Ice Plant:

1. Power cost of brine-agitator motor.
2. Power cost of compressor motor.
3. Power cost of cooling water circulating motor.
4. Cost of pure water.
5. Cost of brine solution.
6. Labour cost.
7. Transportation cost of Ice delivery.
8. Plant maintenance cost.
9. Interest & depreciation of capital invested in ice plant.
Examples :

1) One ammonia refrigerant ice plant produce 160 kw refrigerating effect. The heat rejection
theoretically by evaporator is 1000 KJ / kg. Theoretical compressor input is 185 KJ/kg. Mechanical
efficiency of compressor is 85 %. Actual heat absorption in cold chamber is 80 %. If Power cost
per unit is Rs. 10 and labor cost is Rs 2000/day and overhead cost = Rs. 5000/day find out ice
production rate per kg. Plant is working for 24 hours.

2) A thermal power plant is satisfying max. demand of 70 MW. Load factor is 45% ,estimate power
cost per unit if, interest and depreciation is 10% of capital cost, operating cost is Rs. 1.90 per unit
and capital invested is Rs. 1800/MW