Etiket Arşivleri: DESIGN AND ECONOMICS
FOOD ENGINEERING DESIGN AND ECONOMICS
GENERAL CONSIDERATIONS IN PLANT DESIGN
GENERAL CONSIDERATIONS IN A PLANT DESIGN
3.Plant operation and control
9.Health and safety
The geographical location of the final plant can have a strong influence on the success of an industrial enterprise.
The plant should be located where the minimum cost of production and distribution can be obtained.
The choice of the final site should first be based on a complete survey of the advantages and disadvantages of various geographical areas.
An approximate idea for the plant location should be obtained before a design project reaches the detailed estimate stage.
●1.1. Raw Materials
The source of raw materials is one of the most important factors influencing the selection because location near the raw materials source leads to reduction in transportation and storage charges.
Attention should be given to the;
●purchased price of the raw materials
●distance from the source of supply
●freight or transportation expenses
●availability and reliability of supply
●purity of raw materials
The location of markets or intermediate distribution centers affects the cost of product distribution and the time required for shipping.
It should be noted that markets are needed for by-products and end products as well as for major final products.
●1.3. Energy Availability
Power and steam requirements are high in most industrial plants and the fuel is ordinarily required to supply these utilities. Consequently, power and fuel can be combined as one major factor in the choice of a plant site.
In addition, the presence and cost of electricity is an important consideration for plant location. In industrial areas the cost, voltage and availability of electricity is different than in living areas.
Excessive humidity or extremes of hot or cold weather can have a serious effect on economic operation of a plant and these factors should be examined when selecting a plant site.
●1.5. Transportation Facilities
The common means of transportation used by major industrial concerns are roads, highways, railroads and water. For selection careful attention should be given to “freight rates”.
In food industry, raw materials and food products are in huge amounts and not very durable. Therefore, transportation should be done with a great care and should be fast.
●1.6. Water Supply
The process industries use large quantities of water for cooling, washing, steam generation, immobilized conveying and as a raw material. Therefore, the plant must be located where a dependable supply of water is available.
Water sources can be tab water, rivers, lakes, deep wells and artesian wells. If own sources are to be used the level of existing water, seasonal fluctuations, chemical, bacteriological content and cost for supply and purification must be considered.
●1.7. Waste Disposal
The site selected for a plant should have adequate capacity and facilities for correct waste disposal. In recent years many legal restrictions have been placed on the methods for disposing of waste materials from the process industries. In choosing a palnt site, the permissible tolerance levels for various methods of waste disposal should be considered carefully and attention should be given to potential requirements for additional waste treatment facilities.
●1.8. Labor Supply
The type and supply of labor available in the vicinity of a proposed plant site must be examined. Consideration should be given to prevailing pay rates, restrictions on number of hours worked per week, competing industries that can cause dissatisfaction or high turnover rates among the workers, the ethnic distribution and variations in the skill and intelligence of workers.
●1.9. Taxation and Legal Restrictions
Tax rates, health insurance rates and property tax rates do not change depending on position in our country. However, being a governmental policy some places are promoted for the development (as reduced tax and interest rates). In industrial regions permissions to be taken are important in cost and time delays. For the abroad enterprises local tax rates and promotions should be considered.
●1.10. Site Characteristics
The characteristics of the land at a proposed plant site should be examined carefully (topography and soil structure).
The cost of land is important as well as local building costs and living conditions. Future changes may make it desirable or necessary to expand the plant facilities.
The buildings that are constructed as a result detailed land analysis, soil analysis and structural calculations are very resistant to aging as well as natural disasters like earthquakes.
●1.11 Flood and Fire Protection
Before choosing a plant site, the regional history of natural events like floods or hurricanes should be examined.
Protection from losses by fire is another important factor for selection of plant location. In case of a major fire, assistance from outside fire departments should also be available as well as fire protection systems.
●1.12. Community Factors
The character and facilities of a comunity can have effects on the location of the plant. Cultural facilities as schools, shops, mosques, cafeterias, kindergartens, cinemas are important for a progressive community. If these facilities are not present it becomes for the plant as a necessity to provide such facilities.
2. Plant Layout
●After the process flow diagrams are completed and before detailed piping, structural and electrical design can begin, the layout of process units in a plant and the equipment within these process units must be planned. This layout can play an important part in determining construction and manufacturing costs and thus must be planned carefully with attention being given to future problems that may arise.
●“there is no ideal plant layout”
●A proper layout in each case will include arrangement of processing areas, storage areas and handling areas in efficient coordination and with regard to the following factors:
1.new site development or addition to previously developed site
2.type and quantity of products to be produced
3.type of process and product control
4.operational convenience and accessibility
5.economic distribution of utilities and services
6.type of buildings and building code requirements
7.health and safety considerations
8.waste disposal problems
10.space available and space required
11.roads and railroads
12.possible future expansions.
●Preparation of the layout;
1.First, elementary layouts are prepared which shows the fundamental relationships between storage space and operating equipment (process).
2.The next step requires consideration of the operational sequence and gives a primary layout based on; flow of materials, unit operations, storage, future expansion, administrative parts, laboratories, sampling, change rooms, training rooms, first aid , etc.
3.Finally, by analyzing all the factors that are involved in plant layout, a detailed recommendation can be presented and drawings and elevations, including isometric drawings of the piping systems can be prepared.
●While preparing the layout, three dimensional models are often made. The main advantage of three dimensional models is the possibility of observing the problems that may be missing in two-dimensional drawings. Three-dimensional models are also beneficial for orientation after the plant is completed.
+ “empty area”
●Considerable attention has to be given to auxiliary departments and this should be done before the manufacturing space has been planned in too much detail. Time clocks, restrooms, washrooms and toilets should be located so that they are convenient and accessible to workers entering and leaving the plant.
●General offices of the company should be located so as to provide ready access to the public and freedom from noise of the factory. In many cases it is desirable to keep them adjacent to working areas for closer supervision.
●Engineering and factory offices in particular should be located adjacent to production areas. Some companies separate these offices by a glass partition to isolate sound but still keep a closer touch with the manufacturing areas. This also improves a closer feeling of unity between factory operating personnel and the supervisory force.
●Layout design to minimize non-microbial contamination;
●There should be enough empty space for de-boxing or de-palletizing of raw materials and screening. Similarly space for storage of packaging materials should be present.
●Congestion in areas of open food production makes cleaning and maintenance difficult to achieve without putting food products and other equipments at risk.
●There should be separate storage rooms for finished products. If they have direct contact with raw material dirt and cross-infestation or odor tainting may take place.
●Insufficient space for maintenance operations will result in many problems. Work benches in open production areas should never be permitted. Fitters forced to work in cramped, dirty conditions will find it difficult to conform to the required hygiene standards when working in production areas. Lack of storage space for temporarily disused equipment often results in it being kept in production areas. Such equipment is frequently infested because it is not being cleaned before and during storage.
●If equipment cleaning centers are located too far from production areas, there will be temptation to neglect cleaning schedules. An equal temptation will be for cleaning materials including concentrated detergents. The quantities of foodstuffs tainted by detergents should not be under-estimated.
●There should be enough equipped smoking/snack rooms adjacent to production areas. Otherwise, smoking near machinery or food consumption in unauthorized parts of the factory may take place.
●There should be short and direct routes for waste removal.
●Sometimes returned goods are collected in plant. Such goods are often infested and/or in a state of decomposition. Therefore, they must be isolated from all raw material and production areas.
●There should be;
●Adequate surface drainage to avoid ponding
●Provision of a surface that can be easily cleaned
●A correct sitting and construction of waste-collection areas
●A good housekeeping controls in nearby buildings
●A control for weed growth
●A correct sitting and control of effluent treatment
●Control of stocks of surplus equipment (wood, empty containers, etc.) which are often kept because “it might come in useful”.
3. Plant Operation and control
●In the design of an industrial plant, the methods which will be used for plant operation and control help for the determination of many of the design variables.
●It should be remembered that maintenance work will be necessary to keep the installed equipment and facilities in good operating condition.
Instruments are used in an industrial plant to measure process variables such as; temperature, pressure, density, viscosity, specific heat, conductivity, pH, humidity, liquid level, flow rate, chemical composition, moisture content, etc. By use of instruments having varying degrees of complexity, the values of these variables can be recorded continuously and controlled within narrow limits.
Automatic control is widely used with resulting savings in labor combined with improved ease and efficiency of operations. (which overcomes the added expense for instrumentation) This control is achieved through the use of high speed computers.
Maintenance work includes; repairs, equipment upgrading, testing, field adjustment, etc. Many of the problems involved in maintenance are caused by the original design and layout of the plant and the equipment.
In most cases the design engineer is concious only of first costs and fails to recognize that maintenance costs can easily overcome the advantages of a cheap initial installation.
Sufficient space for maintenance work on equipment and facilities must be provided in the plant layout and the engineer needs to consider maintenance requirements when making decisions on equipment.
●Utilities are the process supplements of an industrial plant as power, steam or water.
●The most common sources of energy are oil, gas, coal and nuclear energy. The decreasing availability of some sources will necessitate the use of alternative forms of energy.
●In production industry the required power is primarily in the form of electricity, other sources are steam engines, internal-combustion engines and hydraulic turbines.
●When a design engineer is setting up the specifications for a new plant, a decision must be based on whether to use purchased power or producing its own power. (if both exist continuous operation is achieved)
●The quantity of steam used in a process varies depending on thermal and mechanical requirements and should be generated from whatever fuel is cheapest.
●Water for industrial purposes can be obtained from the plant’s own sources or a municipal supply. If the demands for water are large, it is more economical for the plant to provide its own water sources. Such a supply may be obtained from drilled wells, rivers, lakes, dammed streams or other supplies.
●Before a company agrees to go ahead with a new project, it must ensure itself of a sufficient supply of water for all industrial, sanitary and safety demands both present and future.
●The value of an abundance of good water supplies is reflected in the selling price of plant locations. Treatment of water significantly increase the operational cost for a plant. Increased cost of water processing necessitates maximum yields for the use of processed water. In general, high cost for both processing and disposal of water lead to minimum amount of utilization for water.
5. Structural Design
●For a successful structural design, it is necessary to know the characteristics of the soil at a given plant site. The allowable bearing pressure varies for different types of soils and the soil should be checked at the surface and at various depths to determine the bearing characteristics.
●The purpose of foundation is to distribute the load so that excessive or damaging settling will not occur. (footing with plain concrete; foundation walls with reinforced concrete)
●Although cost is important for the selection of materials of construction, resistance to adverse effects and flexibility of construction for future changes and expansions are also important. Therefore, corrosive effects of the process, cost of construction, possible future changes and climacteric effects should be considered together.
●Floor design is worth considerable thought and high initial investment. Concrete floors are used extensively in the process industries and covering materials should be used for making the floor resistant to heat and chemical attacks and more important in food industry ease of cleaning and sanitizing. The disruption caused by defective floors may be very costly and piecemeal repair is difficult to achieve. Many floor defects arise from poor planning and preparation and not from the actual finishing material. Floorings which do not contain high-odor materials should be used.
●The number of partition walls should be kept to the minimum and used only to isolate operations which otherwise lead to the spread of contaminants. Too many separate rooms complicate inspection, control and prevents the achievement of uniform standards.
●Correct floor drainage is important in the control of insect infestation and odors. Covered channels present major cleaning problems when compared to open wall junction channels.
●Similarly, it is unnecessary and undesirable for equipment to drain directly on to the floor. This spreads dirt into inaccessible areas and is uncomfortable for operatives.
●Water based cleaning systems are very much restricted in dry production areas such as in bakeries because of lack of drainage. This requires the use of high pressure systems usually applied in inefficient manual methods which demand a greater level of supervision.
●The buildings are usually with flat roofs and special combinations are outer coating in order to reduce effect of seasonal conditions. The interior coating of the roofs is also important since water droplets from condensed vapor on roofs may cause to contamination.
●In conventional buildings ceilings are covered in a network of pipes, lights, cable trays, heaters and channels (ducting). (overhead)
●Maintenance work overhead may cause direct contamination to product or contamination of equipment and subsequently to product. This work should take place in out of work hours and production lines are covered but in practice due to emergencies this cannot be met.
●For powdered materials a difficulty in cleaning occurs when such materials settle on overheads. This cause subsequent mouse or insect activity which in turn endangers production lines.
●Overheads may also function as roosting for small birds where droppings on equipment and raw materials are completely undesirable.
●These problems can be prevented by providing a separate service floor which will house much of the channels (ducting), pipes etc. The result is a clear ceiling which is easy to clean and the removal of many activities, which could cause contamination to the separate service area. Further it does not restrict maintenance work to outside of working hours. This system is also flexible and allows direct feed to be maintained after production line layout changes.
●In the operation of a process plant adequate storage facilities for raw materials, intermediate products, final products, recycle materials, off-grade materials, fuels, cleaning agents, packaging materials and other items.
●Storage of raw materials permits operation of the process plant regardless of temporary supply of delivery difficulties.
●Storage of intermediate products may be necessary during plant shutdown for emergency repairs. this is not practical for food systems since they are sensitive to contamination)
●Storage of products makes it possible to supply the customer even during a plant difficulty or unforeseen shutdown.
●An additional need for adequate storage is encountered when it is necessary to meet seasonal fluctuations.
●Depending on the physical and chemical properties of the materials storage conditions should be determined.
●Bulk storage of liquids is generally handled by closed spherical or cylindrical tanks to prevent escape of volatiles and minimize contamination.
●High-pressure gas is stored in spherical or horizontal cylindrical pressure vessels.
●Solid products and raw materials are either stored in air-tight tanks with sloping floors or in outdoor bins or mounds. Solid products are mostly packed directly on retail packages.
●in all storage areas;
●there must be a control unit (for controls and recording)
●there should be necessary warnings (on doors, walls, instruments etc.)
●ambient or cooled temperatures should be selected depending on the properties of raw material and the products
●depending on amount of material required storage area should be determined
●if long periods of storage are required coding systems should be used to supply equal storage time for all materials.
●if cold storage is to be used, to supply economic utilization of energy, storage area can be divided into parts so that for each loading or unloading temperature of whole area is not raised. For this purpose, rooms may be formed by plastic curtains. by this way input and output of materials could be done without energy losses.
●in storage areas raw materials and products should be stored separately.
●a constant temperature in storage area should be supplied with suitable wall clearance and stack height.
●storage should be made on transportation means to prevent contact with basement.
●there must be enough place to be walked for control purposes. these controls are especially important for ambient temperature since spoilage may take place more often.
7. Materials Handling
●Materials handling equipment used for transportation of solids, liquids and gases are divided into two main groups as continuous or batch.
●Liquids and gases are handled by means of pumps and blowers in pipes and ducts and in containers such as drums or cylinders. (hydraulic conveying)
●Solids may be handled by conveyors, elevators, lift trucks and pneumatic systems.
§Gravity or manually powered conveyors
§Powered conveyors as; roller conveyors, belt conveyor, slat conveyors, chain conveyors, vibratory conveyors, magnetic conveyors, screw conveyors and flight conveyors.
§Package elevators and bulk elevators
§Trucks with low and high vertical lifts
§Pneumatic equipment where air is used to reduce solid-solid friction, either ‘air-cushion’ principle or solid fluidization or solid suspension.
●The selection of materials handling equipment depends upon the cost and the work to be done.
●Factors that must be considered in selecting such equipment include:
1.Chemical and physical nature of material being handled
2.Type and distance of movement of material
3.Quantity of material moved per unit time
4.Nature of feed and discharge from materials handling equipment
5.Continuous and intermittent nature of materials handling
Depending on movement of raw materials and products outside of the plant, some type of receiving and shipping facilities must be provided in the design of the plant. In those facilities cleaning and sanitation units should also be present.
Safety considerations should involve unsafe conditions (insufficient working space, inadequate aisle space, inadequate guarding of running machinery, defective equipment, inadequate lighting and ventilation, unsafe design or construction of equipment and bad floor surfaces) and unsafe acts (unsafe loading and stacking, disregard of traffic signals, carrying out repairs and adjustments on the run, operating without authority, working at unsafe speeds, using incorrect equipment, exceeding the capacity of equipment, failing to use protective clothing and practical joking)
8. Waste Disposal
●Waste from an industrial plant in form of gas, liquid or solid cause to pollution. In order to control this pollution several factors should be evaluated as;
●pollution source (pollutants and the total volume dispersed)
●properties of pollution emissions
●design of the collection and transfer systems
othe size of the equipment is directly related to the volume being treated, therefore exhaust volume should be reduced to decrease equipment cost. If a reduction in pollution source can be obtained process or raw materials can be changed.
●selection of the control device
oselection of the most appropriate control device requires consideration of the pollutant being handled and the features of the control device.
●dispersion of the exhaust to meet applicable regulations.
i. Air Pollution Abatement: Air pollution control equipments can be classified into two major categories, those suitable for removing particulates and those associated with removing gaseous pollutants.
To obtain the greatest efficiency in particulate removal, particular attention must be given to particle diameter and the air velocity.
●Large diameter particles can be removed with low energy devices such as settling chambers, cyclones and spray chambers.
●Intermediate particles can be removed with impingement separators or low energy wet collectors.
●Submicron particles must be removed with high energy units such as bag filters or electrostatic precipitators.
●Noxious Gas removal
Gaseous pollutants can be removed from air streams either by absorption, adsorption, condensation or incineration.
●Condensation, is a method for removing a solvent vapor from air or other gas if the concentration of the solvent in the gas is high and the solvent is worth of recovery. Since condensation can not remove all of the solvent, it can only be used to reduce the solvent concentration in the carrier gas.
●Gas liquid absorption processes are normally carried out in vertical, countercurrent flow through packed, plate or spray towers. For absorption of gaseous streams good liquid-gas contact is essential, therefore proper equipment selection is important.
●Adsorption is generally carried out in large, horizontal fixed beds often equipped with blowers, condensers, separators and controls. Dry adsorbents like activated carbon and molecular sieves are used in removing final traces of objectionable gaseous pollutants.
●Incineration is the simplest way when polluting gas has no value and combustible. There are two methods in common use direct flame and catalytic oxidations.
ii. Water pollution Abatement: since waste liquid may contain dissolved gases or solids or it may be in a form of slurry, physical, chemical or biological treatment methods can be used.
●The problems of handling a liquid waste effluent are considerably more complex than those of handling a waste gas or solid effluent.
●For applicable situations, recovery for reuse or sale should be investigated.
●If product recovery is not capable of solving the problem, the design engineer should decide which treatment, process or combination of processes will give the best performance.
The first step in any waste water treatment process is to remove large floating or suspended particles. The size of solids is wide and several separation methods are used. A common method involves the separation of coarse material using screens. (bar screens, vibrating screens, rotary drum screens etc) Screen apertures range from 25 mm down to micrometer sizes depending on the application.
This is usually followed by sedimentation or gravity settling. Sedimentation takes place in large open ponds if sufficient land area is available. Otherwise gravity sedimentation tanks are used. Entering to those cylindrical vessels the liquid stream slowly rises to the top of the tank to be removed via an overflow launder as a clarified liquid stream. Denser solids settle to the bottom as a thick sludge underflow. Slow speed scraper blades help compact the sludge and drive it to the center off-take pipe for removal. Usually residence times in these units are insufficient for anaerobic decomposition to occur.
FOOD ENGINEERING DESIGN AND ECONOMICS
●For a successful plant design, the process should be capable of operating under conditions which will yield a profit. Since net profit is the difference between total income minus all expenses, it is essential that an engineer should be aware of the many types of costs involved in manufacturing processes.
●Capital must be allocated for direct plant expenses (as raw materials, labor, equipment …) or for indirect expenses (administrative salaries, product distribution costs, cost for communication ….).
●A capital investment is required for any industrial process and determination of the necessary investment is an important part of the design project. The total investment for any process consists of fixed capital investment for physical equipment and facilities in the plant and working capital which must be available to pay salaries, keep raw materials and products on and and handle other special items requiring a direct cash outlay.
Cash flow for industrial operations
●In the figure, total capital investment is shown as the trunk of a tree . The roots are fed by capital sink. Input to capital sink can be in the form of loans, stock issues, bond releases and other funding sources including the net cash flow returned to the capital sink from each project. Output from the capital source is in the form of total capital investments for each of the company’s industrial operations, dividends to stock holders, repayment of debts and other investments.
●The total capital investment includes all the funds necessary to get the project underway. This encompasses the regular manufacturing fixed capital investment and the working capital investment along with the investment required for all necessary auxiliaries and non manufacturing facilities.
●“operations for complete project” represents the overall operations for the complete project with working capital funds moving in and out as needed but not maintaining a constant fund as available working capital.
●Depreciation charges are to allow eventual replacement of the equipment and, therefore, paid back to company capital sink. These charges are not included in the costs for operation. Depreciation must be recognized as a cost before income tax charges are made and before the net profits are reported to the stock holders.
●The difference between income and operating costs represents gross profits before depreciation. After depreciation charges, net profit is taxable. The remainder is clear profit which can be returned to the capital sink along with the depreciation charges to be used for; new investments, dividends or repayment of present investment.
Cumulative cash position
●The time period chosen is the estimated life period of the project and time value of money is neglected.
●The zero point on the abscissa represents the time at which the plant has been completely constructed and is ready for operation.
●The total capital investment at the zero point in time includes land value, fixed capital and auxiliaries investment and working capital. (i.e., cash position is negative)
●Cash flow to the company in the form of net profits starts to accumulate and gradually pays off the full capital investment. After that time, profits accumulate on the positive side of the cumulative cash position until the end of the project life. At that time the project is theoretically shut down and the operation ceases.
●After shut down working capital is still available and it is assumed that land can be sold at its original value.
●The final result on cumulative cash position is a net profit over the total life of the project.
Factors Affecting Investment and Production Costs
When a design engineer determines costs for any type of commercial process, these costs should be of sufficient accuracy to provide reliable decisions. To accomplish this, the engineer must have a complete understanding of the many factors that can affect costs.
1.sources of equipment
5.operating time and rate of production
1.Sources of Equipment
One of the major costs involved in any industrial process is for the equipment. In many cases standard equipments are used and a substantial reduction in cost can be made by employing idle equipment or by purchasing second-hand equipment.
If new equipment must be bought, several independent quotations should be obtained from different manufacturers. When the specifications are given to the manufacturers, the chance for low cost estimate is increased when engineer does not place strict limitations on the design.
2. Price Fluctuations
In the modern competitive economies, prices may vary widely from one period to another and this factor must be considered when the costs for industrial processes are determined.
The cost for equipments, salaries and working capital required are to be compared with market values.
3. Company Policies
Policies of individual companies have a direct effect on costs.
Some concerns have particularly strict safety regulations and these must be met in every detail.
Accounting procedures and methods for determining depreciation costs vary among different companies.
The company policies with respect to labor unions should be considered, because these will affect overtime labor charges and the type of work the operators or other employees can do. Labor union policies may even dictate the amount material and type of material for the equipments, thus have a direct effect on the total cost.
4. Governmental Policies
The national government has many regulations and restrictions which have a direct effect on industrial costs. Some examples are import and export regulations, restrictions on permissible depreciation rates, value added tax (VAT, (KDV)), ? (ÖTV), income tax rules and environmental regulations.
Governmental policies with reference to caital gains and gross-earning taxes should be clearly understood when the costs are determined.
Each company has its own methods for meeting the regulations, but changes in the laws and alterations in the national and companies economic situation require constant surveillance if optimum cost conditions are to be maintained.
5. Operating time and rate of production
One of the factors that has an important effect on the costs is the fraction of the total available time during which the process is in operation. When equipment stands idle for an extended period of time, the labor costs are usually low; however, other costs, such as those for maintenance, protection and depreciation, continue even though the equipment is not in active use.
Operating time, rate of production and sales demand are closely interrelated. The ideal plant should operate under a time schedule which gives the maximum production rate while maintaining economic operating methods. In this way, the total cost per unit of production is kept near a minimum because the fixed costs are utilized to the fullest extend. This ideal method of operation is based on the assumption that the sales demand is sufficient to absorb all the material produced. If the production capacity of the process is greater than the sales demand, the operation can be carried on at reduced capacity or periodically at full capacity.
●In the figure, a graphical analysis of the effect on costs and profits are shown when the rate of production varies. As indicated in the figure, the fixed costs remain constant and the total production cost increases as the rate of production increases. The point where the total product cost equals the total income is known ad the “break-even point”.
●The effects of production rate and operating time on costs should be recognized. By considering sales demand along with the capacity and operating characteristics of the equipment, the engineer can recommend the production rate and operating schedules that will give the best economic results.
●For the production total cost is the summation of fixed cost and variable cost;
CT= CV + CF
The variable cost is a function of production rate R,
CV= gV .R
where gV is the unit variable cost.
Income from sales is a function of production;
IT= fS .R
where fS is the unit selling price.
at break-even point, total cost and total income are equal;
CT= CV + CF = IT
gV. RBEP + CF = fS .RBEP
Example: An industrial operation is working with 70 % capacity. The annual variable production cost is 140 000 $. Total annual fixed cost is 100 000 $. If the unit selling price of the product is 20 $ and with this capacity total annual gain is 280 000 $ what will be the production rate at “break-even point”. If the plant is operated with 100% capacity what will be the gross profit and net profit. For this example tax rate can be taken as 37% over gross profit.
With 100 % capacity, capacity=14 000 (1/0.7)=20 000 units/year
This means break even point is reached at 50 % capacity. At this capacity
total earnings=20 000 (20)= 400 000 $
total costs= 100 000 + 20 000 (10) = 300 000 $
Gross profit = 400 000- 300 000 = 100 000 $
Net profit = 100 000 (1-0.37) = 63 000 $
●Before an industrial plant can be put into operation, a large sum of money must be supplied to purchase and install the necessary machinery and equipment. Land and service facilities must be obtained and the plant must be erected complete with all piping, controls and services. In addition, it is necessary to have money available for the payment of expenses involved in the plant operation.
●The capital needed to supply the necessary manufacturing and plant facilities is called the fixed capital investment, while that necessary for the operation of the plant is termed the working capital. The sum of the fixed capital investment and the working capital is known as the total capital investment.
●Fixed Capital Investment
Manufacturing fixed-capital investment represents the capital necessary for the installed process equipment with auxiliaries that are needed for complete process operation. Expenses for piping, instruments, insulation, foundations and site preparation are typical examples of costs included in the manufacturing fixed-capital investment.
Fixed capital required for construction overhead and for all plant components that are not directly related to the process operation are designated as the non- manufacturing fixed capital investment. These plant components include the land, processing buildings, administrative and other offices, warehouses, laboratories, transportation, shipping and receiving facilities, utility and waste disposal facilities, shops and other permanent parts of the plant.
The construction overhead cost consists of field office and supervision expenses, home-office expenses, engineering expenses, miscellaneous construction costs, contactor’s fees and contingencies.
In some cases, construction overhead is proportioned between manufacturing and non-manufacturing fixed capital investment.
The working capital for an industrial plant consists of the total amount of money invested in:
1.raw materials and supplies carried in stock
2.finished products in stock and semi finished products in the manufacturing process.
4.cash kept on hand for monthly payment of operating expenses such as salaries, wages and raw material purchases.
Since the credit terms extended to customers are usually based on allowable 30 day payment period, the working capital required for accounts receivable ordinarily amounts to the production cost for one month of production.
The ratio of working capital to the total capital investment varies with different processes as 10 to 20 %. This percentage may increase up to 50 percent or more for companies with seasonal raw material demand.
Estimation of Capital Investment
●Capital investment estimations are done with several reasons as;
1.provide feasibility analysis
2.help investors to decide between alternatives
3.help investigations for money supply
4.for new projects help for probabilities of bidding.
The aim for the estimate and the aimed accuracy level directly affects the spent time and money.
●Order of Magnitude Estimate (Based on the Method of Hill, 1956)
This estimation method can be applied rapidly and is useful in determining whether a is worth pursuing, especially when there are competing routes. Bench-scale laboratory data is sufficient to determine the type of equipment and its arrangement to convert raw materials to products.
To produce the estimate production rate in amount per year and flow sheet are required.
●Study estimate (Based on the overall Factor Method of Lang, 1948)
Study estimate is based on a preliminary process design, where capital cost of a plant is estimated using overall factors that multiply estimates of the delivered cost of the major items of the process equipment. This method requires a process design complete with mass and energy balance and equipment sizing. In addition, materials of construction for the major items of equipment including the heat exchangers and pumps must be known.
Considerably more time is required for this estimate than order of magnitude estimate. But, accuracy is improved to ±35%.
●Preliminary estimate (Based on the Individual Factors Method of Guthrie,1974)
This method is best carried out after an optimal process design has been developed, complete with a mass and energy balance, equipment sizing, selection of materials of construction and required process control configuration is incorporated.
In this type of estimates accuracy can be improved up to ± 20 %.
●The purchased cost of processing equipment is generally obtained from charts, equations or quotes from vendors which are based on conditions at some time in the past. However costs are not static and because of inflation they generally increase with time. To update cost data at past to costs that are representative of the conditions of today cost indexes are used.
●A cost index is merely an index value for a specific time showing the cost at that time relative to a certain base time. If the cost at some time in the past is known, the equivalent cost at the present time ca be determined by multiplying the original cost by the ratio of the present index value to the index value applicable when the original cost was obtained.
●Cost indexes can be used to give a general estimate, but no cost index can take into account all factors, such as special technological advancements or local conditions. The common indexes permit fairly accurate estimates if the time period is less than 10 years.
●Many different types of cost indexes are published regularly. Some of these can be used for estimating equipment costs, others apply specifically to labor, construction, materials or other specialized fields.
●Most common indexes for process industries are:
●The Chemical Engineering (CE) Plant Cost Index (I=100 for 1958)
●The Marshall and Swift (MS) Equipment Cost Index (I=100 for 1926) Contains all industry average equipment purchase cost.
●The Engineering News-Record (ENR) Construction Cost Index (I=100 for 1967) This index shows the variations in labor rates and materials costs for industrial construction.
In our country such indexes are not provided. However, some indexes are prepared as life index, construction, materials and workmanship prices of some companies. These are published by, TÜİK, DPT, Bayındırlık Bakanlığı, Sanayi ve Ticaret Bakanlığı, Sanayi ve ticaret odaları,etc
If the cost indexes are not found for our country, an approximate solution might be the use of the indexes in any country and calculating the amount based on currency exchange rate.
Fixed Capital Investment Items
2.Purchased equipment installation
3.Instrumentation and controls
5.Electrical equipment and materials
6.Building (including services
10.Engineering and Supervision
The cost of purchased equipment is the basis of several pre-design methods for estimating capital investment.
It is often necessary to estimate the cost of a piece of equipment based on a different operational capacity involved. Good results can be obtained by using the logarithmic relationship known as the six-tenths factor rule.
2. Purchased equipment Installation
The installation of equipment involves costs for labor, foundations, supports, platforms, construction expenses and other factors directly related to the erection of purchased equipment.
When very high or very low temperatures are involved, insulation factors can become important and it may be necessary to estimate insulation costs with a great deal of care.
3. Instrumentation and Controls
Instrument costs, installation labor costs and expenses for auxiliary equipment and materials constitute the major portion of the capital investment required for instrumentation.
Total instrumentation cost depends on the amount of control required and may amount to 6-30 percent of the purchased cost for all equipment.
The cost for piping covers labor, valves, fittings, pipe, supports and other items involved in the complete erection of all piping used directly in the process.
Piping estimation methods involve either some degree of piping take-off from detailed drawings and flow sheets or using a factor technique when neither detailed drawings nor flow sheets are available.
5. Electrical Installation
The cost for electrical installations consists primarily of installation labor and materials for power and lighting, with building service lighting usually included under the heading of building and services costs.
6. Buildings including services
The cost for buildings including services consists of expenses for labor, materials and supplies involved in the construction of all buildings connected with the plant
One of the important items for building costs arises when huge amounts of storage requirements exist. (in food industry)
7. Yard Improvements
Costs for fencing, grading, roads, sidewalks, railroad sidings, landscaping and similar items constitute the portion of the capital investment included in yard improvements.
8. Service Facilities
Utilities for supplying steam, water, power, compressed air and fuel are some service facilities of an industrial plant. Waste disposal, administrative offices, fire protection, first aid, cafeteria, shipping and unloading facilities, warehouses, control rooms, storage facilities are included in service facilities cost.
The cost for land and the accompanying surveys and fees depends on the location of the property.
Land is not considered in depreciation charges.
1. Engineering and Supervision
The costs for construction design and engineering, drafting, purchasing, accounting, construction and cost engineering, travel, communications and home office expenses including overhead constitute the capital investment for engineering and supervision.
2. Construction Expense
Construction expense includes temporary construction and operation, construction tools and rentals, personnel located at the construction site, construction payroll, travel and living, taxes and insurance and other construction overhead.
3. Contractor’s Fee
The contractor’s fee varies for different situations.
A contingency factor is usually included in an estimate of capital investment to compensate for unpredictable events.
After plant construction has been completed, there are quite frequent changes that have to be made before the plant can operate at optimum design conditions. These changes involve expenditures for materials and equipment and result in loss of income while the plant is shut down or is in operation with partial capacity.
The cost of plant startup is typically estimated as 10% of Fixed Capital Investment.
Some company accountants may prefer to divide plant startup costs into two categories;
1.those costs incurred by the contractor in checking equipment performance, calibrating controllers and other plant equipment and commissioning the plant (included in capital cost)
2.those costs incurred by plant operating personnel when starting up and shutting down the plant (included in operating costs)
Estimation of Total Product Cost
●The methods of estimating the total capital investment have been discussed up to this time, which constitutes 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 combined under the general heading of “total product cost” , which is further divided into categories of
●Total product costs are commonly calculated on one of three bases;
unit of product basis
●The annual cost basis is probably the best choice for estimation of total product cost, since:
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 fully capacity
4.it provides a convenient way of considering infrequently occurring but large expenses.
ESTIMATION OF TOTAL PRODUCT COS
I. Manufacturing Cost
I.1 Direct Production Costs
I.1.3.Direct supervisory and clerical labor
I.1.5.Maintenance and repairs
-supervision and timing
I.1.8. Patents and Royalties
I.1.9.Ingredients.catalysts and solvents
I.2 Fixed Charges
I.3 Plant Overhead Costs
-Hospital and medical services
-Safety and protection
-General plant maintenance and overhead
-Restaurant , cafeteria etc. facilities
II. General Expenses
II.2.Distribution and marketing expenses
-particular material produced
-other products sold by the company
-number of consumers
II.3.Research and development costs
I. Manufacturing Costs
●All expenses directly connected with the manufacturing operation or the physical equipment of a process plant itself are included in the manufacturing costs.
I.1. Direct Production Costs
Direct production costs include expenses directly associated with the manufacturing operation. Some of the variable costs listed here as a part of the direct production costs have an element of fixed cost in them. Although their amount changes with production level some part still occurs when the process plant is shut down
I.1.1. Raw Materials
In food industry one of the major costs of production is for the raw materials in 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. The cost should be mainly based on the amount of raw materials consumed ( some of the materials are recovered, so they are not cost items ).
Direct price quotations from prospective suppliers are preferable and freight or transportation charges should be included in the raw-material cost. These charges should be based on the form in which the raw materials are to be purchased for use in the final plant. These charges are expressed in four different methods:
i.CIF Cost Insurance Freight
All cost items are to be paid by the seller. The cost of the material does not depend on the location taxes, municipality charges, housing foundation, education foundation and defending foundations are all included .
ii. FOB Free on Board
Only the transportation charges are paid by supplier
iii. FOB Production Center
The purchaser have to pay fort he transportation charges.
iv. Shared Freight
The seller should bring the materials to the nearest distribution center and the purchaser pays fort he transportation charge from those centers to the factory.
If the cost of raw material is an important part of total cost, then the firm should make additional contracts with producers. This may even effect the plant location. The estimations for future changes should also be included in the cost estimation.
Other items affecting raw material cost are the amount of order and the quality of raw material. The quality is especially important for food industries and standards should be established and obeyed for each group.
If the raw material is obtained within the firm, these might be profit including selling prices or some fictitious prices for taxation purposes.
I.1.2. Operating Labor
In general operating labor may be divided into skilled and unskilled labor. Labor charges are determined by experience of firm. In some industrially developed countries labor charges are fixed and published periodically.
By using the flow sheet of the process the operating labor can be estimated from an analysis of the work to be done. In batch operations operating labor estimation is more important. Primarily, in these operations labor requirements are higher, also worker can be adjusted to be involved in more than one process. In continuous operations need for labor is not affected by amount of production. For such operations labor can be considered as fixed. However, changes in amount of production affect the labor requirements as materials handling, packaging and so on.
I.1.3. Direct Supervisory and Clerical Labor
A certain amount of direct supervisory and clerical labor is always required for a manufacturing operation. The necessary amount of this type of labor is related to:
– total amount of operating labor
– complexity of the operation
– product quality standards.
The cost for utilities depends on
●amount of consumption
The utility may be purchased at predetermined rates from an outside source or the service may be available from within the company. If the company supplied its own service and this is utilized for just one process, the entire cost of the service installation is usually charged to the manufacturing process. If the service is utilized for the production of several different products the service cost is apportioned among the different products the service cost is apportioned among different products at a rate based on the amount of individual consumption.
●Cost for steam is expressed per ton. This cost includes fuel, pretreatment of water, labor, depreciation and maintenance. If the steam is used only for heating purposes, estimation of the cost is easy. However, if it’s used for production of electricity in turbines and the exhaust part will be used for heating the estimation becomes more complex.
●Cooling water cost includes the cost for water, chemicals, depreciation charges, maintenance and pumping. The use of cooling water for one pass is not feasible. The cooling water itself is cooled by exposing to air and with adiabatic vaporization of some part. Therefore climate is important for water cooling systems design. Another cost will be faced for the conditioning of water. ( as pH adjustment, addition of biocides to prevent growth of microorganisms etc. ).
●In food processing factories, nitrogen is used as inert gas. It’s sold in pressurized containers and price for each cubic meters is fixed. Another gaseous item is compressed air, it’s cost is a combination of compressor and energy costs.
●Electricity is obtained from central distribution in most of the cases and in our country it’s supplied by TEDAŞ with fixed rates.
I.1.5 Maintenance and Repairs
A considerable amount of expense is necessary for maintenance and repairs if a plant is to be kept in efficient operating condition. The cost for maintenance is function of;
– complexity of process
– material of construction
– skills of persons using the equipment
– previous maintenance and repair Works at the plant.
The cost for maintenance and repair is composed of
i, necessary material
iii. supervision and some general expenses including timing.
In the operation of plant, maintenance and repair costs are not stationary, they increase as the time of usage increase as the time of usage increases. On the other hand, if additional installations are made the maintenance and repair costs will be reduced. Therefore, in every plant the records for maintenance and repair should be kept with attention.
I.1.6 Operating Supplies
In any manufacturing operation, many supplies are needed to keep the process functioning efficiently. Items such as charts, lubricants, test chemicals, laboratory chemicals, guarding supplies can be considered as operating supplies.
I.1.7. Laboratory Charges
The cost of laboratory tests for control of operations and for product quality-control is covered in laboratory charges.
I.1.8. Patents and Royalties
Many manufacturing processes are covered by patents and it may be necessary to pay a set amount for patents rights or royalty based on the amount of material produced. if the patent is obtained in the plant, a certain amount of the total expense should be considered as an operating expense. In a manner, these costs are amortized over the legally protected life of the patent.
I.1.9. Catalysts and Solvents
Depending on the process involved some solvents, preservatives, natural dyes, leavening agents, purified vitamins etc. are used which brings additional costs.
I.2. Fixed Charges
Fixed charges are expenses which remain practically constant from year to year and do not very widely with changes in production rate. These are also expenses which are always present in an industrial plant whether or not the manufacturing process is in operation.
Equipments, buildings and other material objects compromising a manufacturing plant require an initial investment which must be written off as a manufacturing expense. In order to write off this cost, a decrease in value is assumed to occur throughout the usual life of the material usage possessions. This decrease in value is designated as depreciation.
Since depreciation rates are very important in determining the amount of income tax, allowable depreciation rates based on the probable useful life of various types of equipment and other fixed items involved in manufacturing operations are established.
The most widely used method for depreciation is straight-line method. In applying this method, a useful-life period and a salvage value at the end of the useful life are assumed. The difference between initial cost and salvage value divided by the total years of useful life gives the annual cost due to depreciation.
I.2.2. Local Taxes
These taxes are paid independent of income. Taxes paid for municipalities, (geçici vergi, muhtasar, stopaj, eğitime katkı payı…)
Insurance rates depend on the type pf process being carried out in the manufacturing operation and on the extent of available protection facilities.
Annual costs for rented land and buildings show great variations depending on location.
I.3. Plant Overhead Costs
These costs are similar to the basic fixed chargers in that they do not vary widely with changes in production rate.
The expenditures required for routine plant services are included in plant overhead costs.
Expenses connected with the following comprise the bulk of the charges for plants overhead.
●Hospital and medical services
●Safety and protection janitor and similar services
●General plant maintenance and overhead. Employment offices, distribution of utilities, shops
●Restaurant, cafeteria and recreation facilities
●Storage facilities; interplant communications and transportation , warehouses, shipping and receiving facilities.
These charges are closely related to the costs for all labor directly connected with the production operation.
II. General Expenses
In addition to the manufacturing costs, other general expenses are involved in any companies operations.
II. 1. Administrative Expenses
These costs cannot be charged directly to manufacturing costs however it’s necessary to include the administrative costs if the economic analysis is to be complete.
●executive salaries; administrators, accountants
●clerical wages; secretaries, typists
●engineering and legal costs; administrative buildings and other administrative activities.
●Office maintenance; costs for Office supplies and equipment.
●Communications; outside communications.
II.2. Distribution and Marketing Expenses
From a practical viewpoint, no manufacturing operation can be considered a success until the products have been sold or put to some profitable use. Therefore, the expenses involved in selling the products should be considered.
Distribution and marketing costs vary widely for different types of plants depending on the
●particular material being produced
●other products sold by the company
●number of consumers
II.3. Research and Development Costs
New methods and products are constantly being developed in modern industries. Research and development costs include;
●salaries and wages for all personnel connected with this work
●fixed and operating expenses for all machinery and equipment involved
●cost for materials and supplies
●direct overhead expenses etc.
When the capital investment is supplied with barrowed capital either partially or as a whole, then this amount should be paid back together with interest.
A fixed rate of interest is established at the time the capital is barrowed, therefore interest is a definite cost if the capital is to be barrowed.
For income tax calculations, interest on owned Money cannot be charged as a cost.
Unexpected happenings and expenditures should be combined in this title and an amount is shown as general expenses.