Page 224 - Plant design and economics for chemical engineers

COST ESTIMATION 195
capital investment is only one part of a complete cost estimate. Another equally
important part is the estimation of costs for operating the plant and selling the
products. These costs can be grouped under the general heading of totalproduct
cost. The latter, in turn, is generally divided into the categories of manufacturing
costs and general expenses. Manufacturing costs are also known as operating or
production costs. Further subdivision of the manufacturing costs is somewhat
dependent upon the interpretation of direct and indirect costs.
Accuracy is as important in estimating total product cost as it is in
estimating capital investment costs. The largest sources of error in total-prod-
uct-cost estimation are overlooking elements of cost. A tabular form is very
useful for estimating total product cost and constitutes a valuable checklist to
preclude omissions. Figure 6-7 provides a suggested checklist which is typical of
the costs involved in chemical processing operations.
Total product costs are commonly calculated on one of three bases:
namely, daily basis, unit-of-product basis, or annual basis, The annual cost basis
is probably the best choice for estimation of total cost because (1) the effect of
seasonal variations is smoothed out, (2) plant on-stream time or equipment-
operating factor is considered, (3) it permits more-rapid calculation of operating
costs at less than full capacity, and (4) it provides a convenient way of
considering infrequently occurring but large expenses such as annual turnaround
costs in a refinery.
The best source of information for use in total-product-cost estimates is
data from similar or identical projects. Most companies have extensive records
of their operations, so that quick, reliable estimates of manufacturing costs and
general expenses can be obtained from existing records. Adjustments for in-
creased costs as a result of inflation must be made, and differences in plant site
and geographical location must be considered.
Methods for estimating total product cost in the absence of specific
information are discussed in the following paragraphs. The various cost ele-
ments are presented in the order shown in Fig. 6-7.

Manufacturing Costs
All expenses directly connected with the manufacturing operation or the physi-
cal equipment of a process plant itself are included in the manufacturing costs.
These expenses, as considered here, are divided into three classifications as
follows: (1) direct production costs, (2) fixed charges, and (3) plant-overhead
costs.
Direct production costs include expenses directly associated with the manu-
facturing operation. This type of cost involves expenditures for raw materials
(including transportation, unloading, etc.,); direct operating labor; supervisory
and clerical labor directly connected with the manufacturing operation; plant
maintenance and repairs; operating supplies; power; utilities; royalties; and
catalysts.