Page 176 - Plant design and economics for chemical engineers

CHAPTER
6

COST
ESTIMATION

An acceptable plant design must present a process that is capable of operating
under conditions which will yield a profit. Since net profit equals total income
minus all expenses, it is essential that the chemical engineer be aware of the
many different types of costs involved in manufacturing processes. Capital must
be allocated for direct plant expenses, such as those for raw materials, labor,
and equipment. Besides direct expenses, many other indirect expenses are
incurred, and these must be included if a complete analysis of the total cost is to
be obtained. Some examples of these indirect expenses are administrative
salaries, product-distribution costs, and costs for interplant communications.
A capital investment is required for any industrial process, and determina-
tion of the necessary investment is an important part of a plant-design project.
The total investment for any process consists of fixed-capital investment for
physical equipment and facilities in the plant plus working capital which must
be available to pay salaries, keep raw materials and products on hand, and
handle other special items requiring a direct cash outlay. Thus, in an analysis of
costs in industrial processes, capital-investment costs, manufacturing costs, and
general expenses including income taxes must be taken into consideration.

CASH FLOW FOR INDUSTRIAL OPERATIONS
Figure 6-1 shows the concept of cash flow for an overall industrial operation
based on a support system serving as the source of capital or the sink for capital*
receipts. Input to the capital sink can be in the form of loans, stock issues, bond
releases, and other funding sources including the net cash flow returned to the

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