Page 47 - Chemical process engineering design and economics

Production and Capital Cost Estimation 33

Current assets consist of:

1. available cash - for salaries, raw material purchases, maintenance
supplies, and taxes
2. accounts receivable - extended credit to customers
3. product inventory - material in storage tanks and bins
4. in-process inventory - material contained in pipe lines and vessels
5. raw material inventory - material in storage tanks and bins

Funds are continually required for equipment replacement, land improvement, and
plant expansion, when economic conditions are favorable. Because funds for a
project were originally provided by management, the division must return them as
depreciation or depletion. Also, use of their capital management requires a profit.
The sum of profit and depreciation or depletion constitutes cash flow.

PRODUCTION COSTS

To determine the financial attractiveness of a process, management requires both
the total capital requirements and the production cost of a product. Operating cost
and manufacturing cost have also been used synonymously with production cost.
Figure 2.3 lists the various costs that contribute to the production cost. Peters and
Timmerhaus [4] lists some of these costs. Perry and Chilton [3] give a more exten-
sive list. Figure 2.3 groups costs under various categories. The important point is
not under what category to include each cost, which is determined by the account-
ing practice of a firm, but more importantly not to omit any cost that influences the
production cost.
Figure 2.3 divides the total production cost into three main categories direct
costs, indirect costs, and general costs. Direct costs, also called variable costs, tend
to be proportional to the production rate, whereas the indirect cost, composed of
fixed cost and plant overhead cost, tend to remain constant regardless of the pro-
duction rate. General costs include the costs of managing the firm, marketing the
product, research and development on new and old products, and financing the
operation.
Table 2.1, which corresponds to Figure 2.3, outlines a rapid method of esti-
mating the production cost of a chemical using numerical factors given by Winter
[1] and Humphreys [5]. These factors are only approximate, and they will vary
with the type of process considered. They are useful, however, for preliminary
estimates. Most companies will have their own factors that are specific for their
processes.

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