Page 286 - Chemical engineering design

COSTING AND PROJECT EVALUATION
6. Capital charges.
7. Rates (and any other local taxes). 261
8. Insurance.
9. Licence fees and royalty payments.
Variable costs
1. Raw materials.
2. Miscellaneous operating materials.
3. Utilities (Services).
4. Shipping and packaging.
The division into fixed and variable costs is somewhat arbitrary. Certain items can
be classified without question, but the classification of other items will depend on the
accounting practice of the particular organisation.
The items may also be classified differently in cost sheets and cost standards prepared
to monitor the performance of the operating plant. For this purpose the fixed-cost items
should be those over which the plant supervision has no control, and the variable items
those for which they can be held accountable.
The costs listed above are the direct costs of producing the product at the plant site.
In addition to these costs the site will have to carry its share of the Company’s general
operating expenses. These will include:
1. General overheads.
2. Research and development costs.
3. Sales expense.
4. Reserves.
How these costs are apportioned will depend on the Company’s accounting methods.
They would add about 20 to 30 per cent to direct production costs at the site.

6.9.1. Estimation of operating costs
In this section the components of the fixed and variable costs are discussed and methods
given for their estimation.
It is usually convenient to do the costing on an annual basis.

Raw materials
These are the major (essential) materials required to manufacture the product. The
quantities can be obtained from the flow-sheet and multiplied by the operating hours
per year to get the annual requirements.
The price of each material is best obtained by getting quotations from potential suppliers,
but in the preliminary stages of a project prices can be taken from the literature.
The American journal Chemical Marketing Reporter, CMR (2004), publishes a weekly
review of prices for most chemicals. The prices for a limited number of chemicals in
Europe can be found in European Chemical News, ECN (2004). U.S. prices, converted to
the local currency at the current rate of exchange, can be used as a guide to the probable
price in other countries. An indication of the prices of a selected range of chemicals is
given in Table 6.4 (see p. 263).