Page 238 - Plant design and economics for chemical engineers

COST ESTIMATION 209

and the number of units needed for a break-even point is given by
200,000 + 20n = 40n
200,000
n = ~ = 10,000 units/year
20
This is [(10,000)/(14,000/0.7)]100 = 50% of the present plant operating capacity.
Gross annual earnings = total annual sales - total annual product cost
14,000
= Funits (MO/unit)
14,000
- 200,000 + 07 units ($20/unit) 1
[
= 800,000 - 600,000
= $200,000
Net annual earnings = gross annual earnings - income taxes
= 200,000 - [(0.15)(50,000) + (0.25)(25,000)
+ (0.34)(200,000 - 75,000)
+ (0.05)(200,000 - lOO,OOO)]
= 200,000 - 61,250
= $138,750

CONTINGENCIES
Unforeseen events, such as strikes, storms, floods, price variations, and other
contingencies, may have an effect on the costs for a manufacturing operation.
When the chemical engineer predicts total costs, it is advisable to take these
factors into account. This can be accomplished by including a contingency factor
equivalent to 1 to 5 percent of the total product cost.

SUMMARY
This chapter has outlined the economic considerations which are necessary
when a chemical engineer prepares estimates of capital investment cost or total
product cost for a new venture or project. Methods for obtaining predesign cost
estimates have purposely been emphasized because the latter are extremely
important for determining the feasibility of a proposed investment and to
compare alternative designs. It should be remembered, however, that predesign
estimates are often based partially on approximate percentages or factors that
are applicable to a particular plant or process under consideration. Tables 26
and 27 summarize the predesign estimates for capital investment costs and total
product costs, respectively. The percentages indicated in both tables give the
ranges encountered in typical chemical plants. Because of the wide variations in
different types of plants, the factors presented should be used only when more
accurate data are not available.