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  • L4 - V3 - Operating Expenditure - Slides

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    This document defines operational expenditure and the components of cash cost of production. It explains that operational expenditure includes both variable and fixed costs of production. Variable costs are proportional to production rate and include raw materials, utilities, consumables, and effluent disposal. Fixed costs are incurred regardless of production rate and include operating labor, supervision, maintenance, property taxes, rent, and overhead. The document provides examples of costs that fall under each category and notes algorithms exist for determining labor needs based on plant size and location.

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    This document defines operational expenditure and the components of cash cost of production. It explains that operational expenditure includes both variable and fixed costs of production. Variable costs are proportional to production rate and include raw materials, utilities, consumables, and effluent disposal. Fixed costs are incurred regardless of production rate and include operating labor, supervision, maintenance, property taxes, rent, and overhead. The document provides examples of costs that fall under each category and notes algorithms exist for determining labor needs based on plant size and location.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    4 views6 pages

    L4 - V3 - Operating Expenditure - Slides

    Uploaded by

    Gary Gary xu
    This document defines operational expenditure and the components of cash cost of production. It explains that operational expenditure includes both variable and fixed costs of production. Variable costs are proportional to production rate and include raw materials, utilities, consumables, and effluent disposal. Fixed costs are incurred regardless of production rate and include operating labor, supervision, maintenance, property taxes, rent, and overhead. The document provides examples of costs that fall under each category and notes algorithms exist for determining labor needs based on plant size and location.

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    © All Rights Reserved
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    of 6

    UCL Department of Chemical Engineering

    Economics

    Operational expenditure
    Part of CENG0016 Economics
    L4_V3

    © UCL Chemical Engineering 1


    UCL Department of Chemical Engineering

    Operational expenditure - definitions


    • Operational Expenditure also referred to as Production Costs
    • Cash Cost of Production (CCOP) is the sum of fixed and variable production costs
    𝐶𝐶𝑂𝑃 = 𝑉𝐶𝑂𝑃 + 𝐹𝐶𝑂𝑃
    VCOP = sum of variable costs of production minus by-product revenue
    FCOP = sum of fixed costs of production

    • Variable costs of production are proportional to plant


    production rate
    • Fixed costs of production are incurred regardless of plant
    production rate

    © UCL Chemical Engineering 2


    UCL Department of Chemical Engineering

    Variable costs of production include


    1 Raw materials  determined from mass balances, typically 80-90% of CCOP
    Utilities  requirements normally determined from energy balances, in Appraise
    2
    insufficient information so estimate as % of CCOP
    3 Consumables (e.g. catalysts, solvents, inhibitors, etc.)  over time they are
    depleted and degraded, estimated as % of CCOP
    4 Effluent disposal  determined from mass balances & treatment costs

    5 Packaging & shipping  do not need to consider for Appraise

    © UCL Chemical Engineering 3


    UCL Department of Chemical Engineering

    Fixed costs of production include


    1. Operating labour 7. General plant overhead
    2. Supervision f(1) 8. Environmental f(ISBL, OSBL)
    3. Direct salary overhead f(1, 2) charges

    4. Maintenance f(ISBL) 9. Running license fees or royalties

    5. Property taxes and 10. Capital charges (e.g. interest on


    f(ISBL)
    insurance loans or debt) see Project Spec

    6. Rent of land f(ISBL, OSBL) 11. Sales and marketing costs

    © UCL Chemical Engineering 4


    UCL Department of Chemical Engineering

    Operating labour costs


    • Algorithms for determining
    number of shift workers exist
    • Other algorithms and estimation
    approaches exist
    • Once number of shift workers
    determined need to consider
    average hourly wage, dependent on
    the location you select

    Source: Towler & Sinnott (2012) © UCL Chemical Engineering 5


    UCL Department of Chemical Engineering

    Next …
    • Continue to the next presentation
    • Post any questions you may have on ‘Economics’ on the Appraise forum
    • Prepare for Q&A, plan how your team will determine operating expenditure
    Thank you!

    © UCL Chemical Engineering 6

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