Page 225 - Plant design and economics for chemical engineers

196 PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS
It should be recognized that some of the variable costs listed here as part
of the direct production costs have an element of fixed cost in them. For
instance, maintenance and repair decreases, but not directly, with production
level because a maintenance and repair cost still occurs when the process plant
is shut down.
Fixed charges are expenses which remain practically constant from year to
year and do not vary widely with changes in production rate. Depreciation,
property taxes, insurance, and rent require expenditures that can be classified as
fixed charges.
Plant-overhead costs are for hospital and medical services; general plant
maintenance and overhead; safety services; payroll overhead including pensions,
vacation allowances, social security, and life insurance; packaging, restaurant
and recreation facilities, salvage services, control laboratories, property protec-
tion, plant superintendence, warehouse and storage facilities, and special em-
ployee benefits. These costs are similar to the basic fixed charges in that they do
not vary widely with changes in production rate.

General Expenses

In addition to the manufacturing costs, other general expenses are involved in
any company’s operations. These general expenses may be classified as (1)
administrative expenses, (2) distribution and marketing expenses, (3) research
and development expenses, (4) financing expenses, and (5) gross-earnings ex-
penses.
Administrative expenses include costs for executive and clerical wages,
office supplies, engineering and legal expenses, upkeep on office buildings, and
general communications.
Distribution and marketing expenses are costs incurred in the process of
selling and distributing the various products. These costs include expenditures
for materials handling, containers, shipping, sales offices, salesmen, technical
sales service, and advertising.
Research and development expenses are incurred by any progressive concern
which wishes to remain in a competitive industrial position. These costs are for
salaries, wages, special equipment, research facilities, and consultant fees re-
lated to developing new ideas or improved processes.
Financing expenses include the extra costs involved in procuring the money
necessary for the capital investment. Financing expense is usually limited to
interest on borrowed money, and this expense is sometimes listed as a fixed
charge.
Gross-earnings expenses are based on income-tax laws. These expenses are
a direct function of the gross earnings made by all the various interests held by
the particular company. Because these costs depend on the company-wide
picture, they are often not included in predesign or preliminary cost-estimation
figures for a single plant, and the probable returns are reported as the gross
earnings obtainable with the given plant design. However, when considering net