Page 226 - Plant design and economics for chemical engineers

COST ESTIMATION 197
profits, the expenses due to income taxes are extremely important, and this cost
must be included as a special type of general expense.

DIRRCT PRODUCTION COSTS
Raw Materials
In the chemical industry, one of the major costs in a production operation is for
the raw materials involved in the process. The amount of the raw materials
which must be supplied per unit of time or per unit of product can be
determined from process material balances. In many cases, certain materials act
only as an agent of production and may be recoverable to some extent.
Therefore, the cost should be based on the amount of raw materials actually
consumed as determined from the overall material balances.
Direct price quotations from prospective suppliers are preferable to pub-
lished market prices. For preliminary cost analyses, market prices are often used
for estimating raw-material costs. These values are published regularly in
journals such as the Chemical Marketing Reporter (formerly the Oil, Paint, and
Drug Reporter ).
Freight or transportation charges should be included in the raw-material
costs, and these charges should be based on the form in which the raw materials
are to be purchased for use in the final plant. Although bulk shipments are
cheaper than smaller-container shipments, they require greater storage facilities
and inventory. Consequently, the demands to be met in the final plant should be
considered when deciding on the cost of raw materials.
The ratio of the cost of raw materials to total plant cost obviously will vary
considerably for different types of plants. In chemical plants, raw-material costs
are usually in the range of 10 to 50 percent of the total product cost.

Operating Labor
In general, operating labor may be divided into skilled and unskilled labor.
Hourly wage rates for operating labor in different industries at various locations
can be obtained from the U.S. Bureau of Labor Monthly Labor Review. For
chemical processes, operating labor usually amounts to about 15 percent of the
total product cost.
In preliminary costs analyses, the quantity of operating labor can often be
estimated either from company experience with similar processes or from
published information on similar processes. Because the relationship between
labor requirements and production rate is not always a linear one, a 0.2 to 0.25
power of the capacity ratio when plant capacities are scaled up or down is often
used.
If a flow sheet and drawings of the process are available, the operating
labor may be estimated from an analysis of the work to be done. Consideration