+ Plant costs

+ Overview References: Product and Process Design Principles – Seider, et al Plant Design and Economics for Chemical Engineers – Peters & Timmerhaus Cost and asset accounting Cost estimation Interest and investment costs Taxes and insurance Depreciation Profitabiliyt, alternative investments, and replacements

+ Cost accounting Direct costs – construction, operation Indirect costs, overhead – shared costs with other elements of the company Miscellaneous expenses Administration Distribution and selling R,D, & E – research, development, and engineering Which is usually the largest fraction?

+ Direct costs Cost basis = unit cost * quantity Establish: Standard cost Standard quantity Variance = difference between actual and standard values Quantity variance Cost variance Sensitivity analyses on possible variances at project inception can be useful. ‘back of the envelope design’

+ Compute the variance… variance example Raw material, kg/yrcost, $/kg total material cost, $/yr budget 11,200,000 $0.52 ? actual 10,500,000 $0.51 ? variance ? ? ? % variance ? ? ?

+ variance example Raw material, kg/yrcost, $/kg total material cost, $/yr budget 11,200,000 $0.52 $5,824,000 actual 10,500,000 $0.51 $5,355,000 variance 700,000 $0 $469,000 % variance6.7%2.0%8.8%

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+ Sensitivity analyses Almost any design element can be improved by doing a sensitivity analysis We should do this early and often with costs, environment/safety design elements, …etc

+ Plant costs economic template Choose cme 456 Download P4 total product cost.xls

+ questions how sensitive is the total product cost to raw material costs? How sensitive is the total product cost to unit price? How sensitive is total product cost to plant complexity?