Lecture Note 1

Engineering Design
●Engineering design is planning a system a part of a system or a process in the way which corresponds the needs. Design is a job of making decisions. Where the data at hand are integrated with basic sciences, mathematics and engineering knowledge in the most suitable manner and the target is achieved.
Stages of Design
1.Determination of the aim(s) and desired criteria (need)
2.Collection of data and bring up them together (synthesis)
3.Detailed investigation of the subject (analysis)
4.Regulation and starting the application (construction)
5.Trials (testing)
6.Examination of the results (evaluation)
●Engineering design is an imaginary jump from the realities of today to the probabilities of future.
●Engineering design is a creative activity; it supplies the formation of new and helpful things that was not present before.
●Engineering design is the conversion of data in the form of needs to data in the form of technical systems by the help of human and technical power.
●Engineering design is a problem solving activity directed to a target.
A sample model for Engineering Design
●Step 1. Recognizing the need.
●Step 2. Defining the problem.
●Step 3. Planning the project.
●Step 4. Gathering information.
●Step 5. Conceptualizing alternative approaches.
●Step 6. Evaluating the alternatives.
●Step 7. Selecting the best alternative.
●Step 8. Communicating the design.
●Step 9. Implementing the preferred design.
Process Design Development
Types of Design
1.Preliminary or quick estimate designs
2.Detailed estimate designs
3.Firm process or detailed designs.
i. Preliminary or quick estimate designs
●Preliminary designs are ordinarily used as a basis for determining whether further work should be done on the proposed process. The design is based on approximate process methods and rough cost estimates are prepared. Few details are included and the time spent on calculations is kept at a minimum.
ii. Detailed estimate designs
●If the results of the preliminary design show that further work is justified, a detailed estimate design may be developed. In this type of design, the cost and benefit potential of an established process is determined by detailed analysis and calculations. However, exact specifications are not given for the equipment and drafting work is minimized.
iii. Firm process designs or detailed designs
●When the detailed estimate design indicates that the proposed project should be a commercial success, the final step before developing construction plans for the plant is he preparation of a firm process design. Complete specifications are presented for all components of the plant and accurate costs based on quoted prices are obtained. The firm process design includes blue prints and sufficient information to permit immediate development of the final plans for constructing the plant.
Feasibility survey
●In a feasibility survey process involved must be considered along with the existing and potential market conditions for the particular product. A preliminary feasibility survey gives an indication of the probable success of the project and also shows what additional information is necessary to make a complete evaluation.
●(A need does not mean that, it is;
●possible to fulfill that need)
●Following is a list of items that should be considered in making a feasibility survey:
1.Raw materials (availability, quantity, quality, cost)
2.Chemical an physical processes (equilibrium, yields, rates, optimum conditions)
3.Facilities and equipment available at present
4.Facilities and equipment which must be purchased
5.Estimation of production costs and total investment
6.Profits (probable and optimum, based per mass of product and per year or return on investment)
7.Materials of construction
8.Safety considerations
1.Markets (present and future supply and demand, price changes, location and number of possible customers)
2.Competition (overall production statistics, comparison of manufacturing processes, product specifications of competitors)
3.Properties of products
4.Sales and sale service (distribution, advertisement, technical services)
5.Shipping restrictions and containers
6.Plant location
7.Patent situation and legal restrictions
+ time of the project
Process development
●In many cases, the preliminary feasibility survey indicates that additional research, laboratory or pilot plant data are necessary and a program to obtain this information may be initiated.
●Process development on a pilot-plant or semi-work scale is usually desirable in order to obtain accurate design data.
●By process development the following information are obtained:
●material and energy balances
●process conditions
●grades of raw materials and products
●batch versus continuous operation
●materials of construction
●operating characteristics
●and other design variables.
Preliminary (or quick estimate) designs
●The primary step in preparing the preliminary design is to establish the bases for design. The basic items are;
●the properties of the product and the manufacturing process
●availability and quality of raw material
●annual operating factor
●energy requirements
●valuable by-products
●The next step consists of preparing a simplified flow diagram showing details of the process. Flow rates and stream conditions for the remaining cases are evaluated by:
●material balances
●energy balances
●raw material-product relationships and properties
●The final stage of preliminary design is writing a report which will present the results of the design work. This report shows calculations and design details therefore improves communication.
●As soon as sufficient data are available from feasibility survey or process development the preliminary design should be carried out so that money and time losses for undesirable projects are eliminated.
●Before detailed estimate design;
1.manufacturing process
2.material and energy balances
3.temperature and pressure ranges
4.raw material and product specifications
5.yields, reaction rates, time cycles, capacity
6.materials of construction
7.utility requirements
8.plant site
are to be established.
Detailed estimate designs
●The preliminary design leads the accurate estimation of
●required capital investment
●manufacturing costs
●potential profits
Based on these the following factors should be determined in detailed estimate design stage.
types of buildings, heating, ventilating, lighting, power supply, drainage, waste disposal, safety facilities and instrumentation.
Firm process design or Detailed design
●At this stage all detailed drawings are prepared and real investments are determined.
●A complete plant layout (production lines, facilities etc), blueprints and instructions for construction are developed.
●Specifications are given for warehouses, laboratories, guard-houses, fencing, change houses, transportation facilities etc.
Construction and Operation
●When a definite decision to proceed with the construction of a plant is made, there is usually immediate demand for a quick plant start-up. (why?)
●The design engineer should work closely with construction personnel during the final stages of construction and purchasing.
●During construction of the plant, the design engineer should visit the plant site to assist in interpretation of the plans and learn methods for improving future designs.
●The engineer should also be available during the initial start up of the plant and the early phases of operation. Thus, by close team work between design, construction and operational personnel, the final plant can develop from the drawing board stage to an operating unit that can function both efficiently and effectively.
Comparison of Different Processes
1.Technical factors
2.Process flexibility
3.Continuous operation
4.Special controls involved
5.Commercial yields
6.Technical difficulties involved
7.Energy requirements
8.Special auxiliaries required
9.Possibility of future developments
10.Health and safety hazards involved.
1.Raw Materials
2.Present and future availability
3.Processing required
4.Storage requirements
5.Materials handling problems.
1.Waste products and by-products
2.Amount produced
4.Potential markets and uses
5.Manner of discard
6.Environmental aspects
3.Materials of construction
4.Initial costs
5.Maintenance and installation costs
6.Replacement requirements
7.Special designs
For specification: identification, function, operation (continuous or batch), materials handled (quantity, composition, physical properties), basic design data, essential controls, insulation (temperature, air, noise), requirements, allowable tolerances, special information and details are to be given.
1.Plant location
2.Amount of land required
3.Transportation facilities
4.Nearness to markets and raw material sources
5.Availability of services and power facilities
6.Availability of labor
8.Legal restrictions and taxes
2.Raw materials
5.Other fixed charges
6.Processing and overhead
7.Special labor requirements
8.Real estate
9.Patent rights
10.Environmental controls.
1.Time factor
2.Project completion deadline
3.Process development required
4.Occurrence at right time from market standpoint
5.Value of money.
1.Process considerations
2.Technological availability
3.Raw materials common with other processes
4.Consistency of product within company
5.General company objectives.

Lecture Note 2

1.Plant location
2.Plant layout
3.Plant operation and control
5.Structural design
7.Materials handling
8.Waste disposal
9.Health and safety
1.Plant Location
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
●storage requirements
●1.2. Markets
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.
●1.4. Climate
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: 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 and safety considerations
8.waste disposal problems
9.auxiliary equipment 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.
6. Storage
●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.
●Particulate removal
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.
●Physical Treatment
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.

Lecture Note 3


●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
2.price fluctuations policies
4.governmental policies
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;
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 $
Capital Investments
●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.
●Working Capital
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.
3.accounts receivable kept on hand for monthly payment of operating expenses such as salaries, wages and raw material purchases.
5.accounts payable
6.taxes payable.
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 investors to decide between alternatives 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 %.
Cost Indexes
●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
●Direct Costs
1.Purchased equipment
2.Purchased equipment installation
3.Instrumentation and controls
5.Electrical equipment and materials
6.Building (including services
7.Yard improvements
8.Service facilities
●Indirect Costs
10.Engineering and Supervision
11.Construction expenses
12.Contractor’s fee
1.Purchased equipment
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.
4. Piping
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.
9. Land
The cost for land and the accompanying surveys and fees depends on the location of the property.
Land is not considered in depreciation charges.
●Indirect costs
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.
4. Contingencies
A contingency factor is usually included in an estimate of capital investment to compensate for unpredictable events.
●Startup expense
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
omanufacturing costs
ogeneral expenses
●Total product costs are commonly calculated on one of three bases;
daily basis
unit of product basis
annual 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 permits more rapid calculation of operating costs at less than fully capacity provides a convenient way of considering infrequently occurring but large expenses.
I. Manufacturing Cost
I.1 Direct Production Costs
I.1.1.Raw materials
I.1.2.operating labor
I.1.3.Direct supervisory and clerical labor
I.1.5.Maintenance and repairs
-necessary material
-supervision and timing
I.1.6.Operating Supplies
I.1.7.Laboratory Charges
I.1.8. Patents and Royalties
I.1.9.Ingredients.catalysts and solvents
I.2 Fixed Charges
I.2.2.Local Taxes
I.3 Plant Overhead Costs
-Hospital and medical services
-Safety and protection
-General plant maintenance and overhead
-Payroll overhead
-Restaurant , cafeteria etc. facilities
-Control laboratories
-Storage facilities
II. General Expenses
II.1.Administrative expenses
II.2.Distribution and marketing expenses
-particular material produced
-other products sold by the company
-plant location
-company policies
-number of consumers
II.3.Research and development costs
II.4. Financing
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.
I.1.4 Utilities
The cost for utilities depends on
●amount of consumption
●plant location
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
ii. labor
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.
I.2.1 Depreciation
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…)
I.2.3. Insurance
Insurance rates depend on the type pf process being carried out in the manufacturing operation and on the extent of available protection facilities.
I.2.4. Rent
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
●Payroll overhead
●Restaurant, cafeteria and recreation facilities
●Control laboratories
●Plant superintendence
●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
●plant location
●company policies
●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.
II.4 Financing
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.
II.5. Contingencies
Unexpected happenings and expenditures should be combined in this title and an amount is shown as general expenses.

Lecture Note 4




●Economics is a social science dealing with
Growth and population
Productivity and growth
Unemployment and inflation
Poverty, medical care, government policies, etc.
The science of economics, in fact, arise out of the use of scarce resources to satisfy unlimited human wants. Economics is a part of our daily lives since it consists of the subjects as; getting income and goods, their use, inspection, budgeting, income taxes, future investments etc.
●Engineering economics is a discipline, which evaluates systematically the cost and benefit of the technical and operational projects. In fact engineering economics is a “decision making” process.
●Decision making is a quite broad topic for it is a major aspect of everyday human existence. Therefore, focus will be only those problems that are commonly faced by engineers and develop the tools to properly grasp, analyze and solve them.
●Decision making and problem solving are synonymous with each other from the standpoint of a design engineer.
●For those problems that we consider as “simple” the problem can be solved quickly by thinking without a need for analytical techniques to aid in their solution.
●The “intermediate” level of problems are best suited for solution by engineering economic analysis. In this classification, the economics of the problem are the major component in decision making. There may well be a great many other aspects of the problem to consider before making a decision, but the economic aspects dominate the problem and are therefore dominant in determining its best solution.
●The “complex” problems represent a mixture of economic political and humanistic elements. Engineering economic analysis is not expected to be helpful in solving complex problems.
●The problems suitable for solution by engineering economic analysis have following properties;
1.The problem is sufficiently important that we are justified in giving it some serious thought and effort.
2.The problem can’t be worked in one’s head, that is, a careful analysis requires that we organize the problem and all the various consequences and this just too much to be done all at once.
3.The problem has economic aspects that are sufficiently important to be a significant component of the analysis leading to a decision.
Problem Solving (or Decision Making) in Engineering Economics
1.Determination of the Problem
The first stage is understanding the problem with all aspects. At this stage data are collected and the extend of the problem is determined.
1.Analysis of the Problem
After the determination and definition of the problem the next stage is the analysis of the problem. At this stage the necessary additional information is collected, other possibilities are determined and data are developed.
1.Investigation of Alternative Solutions to the Problem
The third stage is composed of investigating alternative solutions to problem. At this stage suitable solutions to the defined problem should be developed which requires engineering approach (ethics, efforts, believing).
●Some of the factors which will be helpful for the design engineer are:
asking questions related with all aspects of the problem
using the results of similar projects to get new ideas
being creative by considering human and economic factors
being concerned with the efficient use of limited resources
being aware of the fact that opportunities are not made they are discovered
placing the estimated future cash flows for all alternatives on a comparable basis, considering time vaşue of money
not eliminating the ideas before reaching the definite results.
1.Determination of the Selected Alternative
At this stage alternatives are evaluated with engineering analysis methods and non-feasible ones are eliminated. For the feasible alternatives costs and benefits are determined and the selected alternative is transferred into form of engineering project.
●In engineering economic analysis, the results are evaluated at the highest possible extend with money based items. However, there exist some other factors which cannot be based to money but still very important from economical standpoint. Before selecting the best alternative both money based items and others should be evaluated together.
●In an economy or an industrial system the companies carry out their activities within some general rules. (To process certain raw materials, giving taxes, providing accommodation for the people etc.) The firm is successful if the goods or services produced are accepted by the customer and desired by the customer. However, this situation may change with time.
●The factors which are not money based but important for a company to be successful are
to accomplish consumer desires in an appropriate way
getting consumer confidence
production of high quality and defect free goods
to accomplish the expectations of the workers
to get a positive image from consumers
to be capable of changing the production parallel to consumer desires
to regulate the fluctuations between consumption and production occurring some times
to improve the safety conditions within plant
to reduce pollution made to nature
to act in accordance with government policies.
Principles of Engineering Economics
1. rule: selection can be done among alternatives, therefore alternatives should be developed.
2. rule: while comparing and analyzing the alternatives the future out comings should be considered.
3. rule: the evaluation of possible alternatives should be based on realistic factors.
4. rule: for the analysis and comparison of the alternatives a common measurement unit should be used.
5. rule: for selection some criteria are needed. The factors which can be based on money and others should be evaluated together.
6. rule: the results of the alternatives are uncertain therefore contain risk.
7. rule: when implementation starts, the results observed should be continuously compared with the project.
●For a realistic evaluation of an engineering project the change of value of money with respected to time is as important as the cost of the project. When the estimation of capital cost has been finished the next stage is the preparation of the plans for financing the project and expending money. This plan brings about new definitions as “present value” or “future value” of money.
●From the standpoint of engineers, interest is defined as; “the compensation paid for use of borrowed capital”. The rate at which interest will be paid is usually fixed at the time the capital is borrowed and guarantee is made to return the capital at some set time in the future or on an agreed upon pay-off schedule.
●Interest, like taxes, is a very old concept; in 2000 BC it was used Babylon. There was a developed interest calculation method similar to modern methods. In some religions it’s forbidden like Islam. In some other systems as capitalism or some mixed systems interest is an item which supplies continuation by means of banks.
●In the determination of interest rate, the following items should be considered:
amount of money borrowed
the period for which interest is to be calculated
the economic conditions
the probability of paying back the borrowed money
In economic terminology, the amount of capital on which interest is paid is designated as the “principal”. “Rate of interest” is defined as the amount of interest earned by a unit of principal in a unit of time.
If the period of time for the payment of the borrowed money is long, then the amount of interest should be much higher. By this way future value of an item will be higher than the present value.
●Simple Interest
Simple interest is the compensation of payment at a constant interest rate based only on the original principal. If,
P represents the principal
n represents number of time units or interest periods
i represents the interest rate based on the length of one interest period, the amount of simple interest during n interest periods is;
Example: If $ 1000 were loaned for total time of four years at a constant interest rate of 10 percent / year what is the simple interest earned?
●The time unit used to determine the number of interest periods is usually one year and the interest rate is expressed on a yearly basis. When on interest period of less than one year is involved, the “ordinary” way to determine simple interest is to assume the year consists of 360 days. The “exact” method accounts for the fact that there are 365 days in a year. Thus,
P : principal
i : interest rate, expressed on the regular yearly basis
d : number of days in an interest period.
Ordinary interest is commonly accepted in business practices unless there is a particular reason to use the exact value ( banks ).
●The principal must be repaid eventually, therefore the entire amount S of principal plus simple interest due after n interest period is;
Example: Mr. A. Deposited a hundred million TL for a period of 5 years with 40 % simple interest rate. How much will be his Money at the end of 5th year and what is the amount of interest.
●Compound Interest
In the payment of simple interest, it makes no difference whether the interest is paid at the end of each time unit or after any number of time units. The same total amount of money is paid during a given length of time no matter which method is used. Under these conditions, there is no incentive ( promotion ) to pay the interest until the end of the total loan period. However, interest has a time value. If the interest were paid at the end of each time unit, the receiver could put this money to use for earning additional returns.
In compound interest, determination of interest is done regularly at the end of each interest period. If the payment is not made, the amount due is added to the principal and interest is charged on this converted principal during the following time unit.
●At the end of the first loan period;
By this time, the total amount is;
●At the end of the second loan period;
●So at the end of n loan periods
●If the future value of money is known and present value is to be calculated;
●Ex: Mr. A. Deposited a hundred TL for a period of 5 years with 40 % compound interest rate. How much will be his money at the end of the 5th year?
●NOMINAL AND EFFECTIVE INTEREST RATES (compound interest for short term )
In common practice, the length of the interest period is assumed to be one year and the fixed interest rate is based on one year. However, there are cases where other time units are employed.
– nominal interest rate per year, is the annual interest rate without considering the effect of any compounding
i.e.; five percent interest compounded semi annually means that the bank pays 2 ½ % every six months. Five percent interest, compounded semi-annually means hat the bank pays 2 ½ % every six months. Thus the initial amount P = 100 $ will be,
S1 = 100 + 100( 0,025 ) = 102.50 $
This amount is left in the savings account. At the end of the second six months period,
S2 = 102.50 + 102.50( 0.025 ) = 105.06 $
●Example: It is desired to borrow 1000 $ to meet a financial obligation. This money can be borrowed from a loan agency at a monthly interest rate of 2 percent. Determine the following;
1.The total amount of principal plus simple interest due after 2 years if no intermediate payments are made.
2.The total amount of principal plus compounded interest due after 2 years if no intermediate payments are made
3.The nominal interest rate when the interest is compounded monthly
4.The effective interest rate when the interest is compounded monthly
a. length of one interest period: 1 month
number of interest periods in two years: 24
c. Nominal interest rate per year compounded monthly.
●Continuous Interest
The type of interest considered up to this time have the common form of; payments are charged at periodic and discrete intervals. As can be seen from short term compound interest calculations with the increase of compounding periods the amount of interest increased. The extreme case, is when the time interval becomes infinitesimally small so that the interest is compounded continuously.
●If the interest is compounded continuously;
Example: For the case of a nominal annual interest rate of 20 %, determine total amount to which one dollar of initial principal would accumulate after one year with continuous compounding. Also find the effective annual interest rate.
●An annuity is a series of equal payments occurring at equal time intervals. Payments of this type can be used to
oaccumulate a desired amount of capital
opay off a debt
oreceive a lump sum capital that is due in periodic installments as in some life insurance plans.
The common type of annuity involves payments which occur at the end of each interest period. This is known as an ordinary annuity. Interest is paid on all accumulated and the interest is compounded each payment period.
An annuity term is the time from the beginning of the first payment period to the end of the last payment period.
The amount of an annuity is the sum of all the payments plus interest if allowed to accumulate at the definite rate of interest from the time of initial payment to the end of annuity term.
●Let R (A.E.) represent the uniform periodic payment made during n discrete periods in an ordinary annuity.
i ; is the interest rate based on the payment period.
S ; is the amount of the annuity
●The first payment of R is made at the end of the first period and will bear interest for ( n-1 ) periods. Thus, at the end of the annuity term, the first payment will have accumulated to an amount of R( 1 + i )n-1
●The second payment of R is made at the end of second period and will bear interest for n-2 periods giving an accumulated aount of R*( 1 + i )n-2.
●Similarly, each periodic payment will give an additional accumulated amount until the last payment of R is made at the end of the annuity term.
●By definition, the amount of the annuity is the sum of all the accumulated amounts from each payment, therefore
●In order to simplify the equation, both sides are multiplied with (1+i ) and written equation is subtracted from the resulting equation.
●Example: An engineer is paying 1000 $ at each year with four equal payments. If the nominal interest rate is 10 % calculate the total amount of money which will accumulate in 25 years.
Inflation is an important variable of economics, which is tried to kept constant and at a low value. The simplest definition of inflation is to increase in material and service prices at each year.
If the rate of inflation is e, the present price is Pe and the future price is Se;
In the inflational economies, the time value of money decreases with time. Therefore,
●Example: A researcher engineer receives $ 10 000 for a patent he developed. He decides to deposit this money with compound interest of % 8 for a period of fifteen years. If the inflation rate is 6 % for US Dollars, what will be the total income of the engineer at the end of the period.
●Cash Flow Diagrams
In accounting, cash flow should be fallowed with great attention. Cash flow is defined as the difference between in flows and outflows at a certain period of time. This period is usually one year and the term annual cash flow is used.
Use of cash flow diagrams is the easiest way of showing cash flow. In these diagrams each cash flow is represented by a vertical arrow on time axes. If it’s an inflow the arrow points up and if it’s an outflow the arrow points down. In addition, the length of the arrow is proportional with the amount of cash flow.

Lecture Note 6


Profitability, Alternative Investments and Replacements
●Profitability: the measure of the amount of profit that can be obtained from a given situation.
●Before investing a capital in a project or enterprise it is necessary to know how much profit can be obtained and whether its advantageous. Thus, the determination and analysis of profits obtainable from the investment of capital and the choice of the best investment among various alternatives are major goals of an economic analysis.
●Investments may be made for replacing or improving an existing property, for developing a completely new enterprise, or for other purposes wherein a profit is expected from the outlay of capital. For the cases of this sort, its extremely important to make a careful analysis of the capital utilization.
●The basic aim of profitability analysis is to give a measure of the attractiveness of the project for comparison to others. It is, therefore, very important to consider the exact purpose of a profitability analysis before the standard reference or base case is chosen.
●If the purpose is merely to present the total profitability of a given project, a simple statement of total profit per year or annual rate of return may be satisfactory.
●If the purpose is to permit comparison of several different projects in which capital might be invested, the method of analysis should be such that all cases are on the same basis so that direct comparison can be made among the appropriate alternatives.
●In reaching the final decision, alternatives should be considered two at a time with an acceptable basis.
●Total profit alone cannot be used as the deciding profitability factor in determining if an investment should be made. In such a case, any investment which would give profit should be accepted without considering
how low the return
how great the cost
Therefore, the profit goal of a company is to maximize income above the cost of the capital which must be invested to generate the income.
Mathematical Methods for Profitability Evaluation
1.Rate of Return on Investment
●In engineering economic studies, rate of return on investment is ordinarily expressed on annual percentage basis. The yearly profit divided by the total initial investment necessary represents the fractional return and this fraction times 100 is the standard percent return on investment.
●Profit is defined as the difference between the income and expense. Therefore, profit is a function of the quantity of goods or services produced and the selling price. The amount of profit is also affected by the economic efficiency of the operation and increased profits can be obtained by use of effective methods which reduce operating expenses.
●To obtain reliable estimates of investment returns, it is necessary to make accurate predictions of profits and the required investment. To determine the profit, estimates must be made of direct production costs, fixed charges including depreciation, plant overhead costs and general expenses. Profits may be expressed on a before-tax or after-tax basis, but the conditions should be indicated. Both working capital and fixed capital should be considered in determining the total investment.
2. Discount Cash Flow
●This method takes into account the time value of money and is based on the amount of the investment that is unreturned at the end of each year during the estimated life of the project.
●A trial and error procedure is used to establish a rate of return which can be applied to yearly cash flow so that the original investment is reduced to zero (or salvage + land + working capital investment) during the project life.
●The rate of return by this method is equivalent to the maximum interest rate at which money could be borrowed to finance the project under conditions where the net cash flow to the project over its life would be just sufficient to pay all principal and interest accumulated on the outstanding principal.
3. Net Present Worth
●In the “discounted cash flow” method the procedure has involved the determination of an index or interest rate which discounts the annual cash flows to a zero present value when properly compared to the initial investment. This index gives the rate of return which includes the profit on the project, payoff of the investment and normal interest on the investment.
●The net present worth substitutes the cost of capital at an interest rate i for the discounted cash flow rate of return.
●The cost of capital can be taken as the average rate of return the company earns on its capital, or it can be designated as the minimum acceptable return for the project.
●The net present worth of the project is then the difference between the present value of the annual cash flows and the initial required investment.
4. Capitalized Costs
●The capitalized cost profitability concept is useful for comparing alternatives which exist as possible investment choices within a single overall project.
●Capitalized cost related to investment represents the amount of money that must be available initially to purchase the equipment and simultaneously provide sufficient funds for interest accumulation to permit perpetual replacement of the equipment. If only one portion of an overall process to accomplish a set objective is involved and operating costs do not vary, then the alternative giving the least capitalized cost would be the desirable economic choice.
5. Payout Period
●Payout period or payout time is defined as the minimum length of time theoretically necessary to recover the original capital investment in the form of cash flow to the project based on total income minus all costs except depreciation.
●Generally for this method, original capital investment means only the original, depreciable, fixed capital investment and interest effects are neglected.
●Another approach to payout takes the value of money into consideration and is designated as payout period including interest. With this method, an appropriate interest rate is chosen representing the minimum acceptable rate of return. The annual cash flows to the project during the estimated life are discounted at the designated interest rate to permit computation of an average annual figure for profit plus depreciation which reflects the time value of money. The time to recover the fixed capital investment plus compounded interest on the capital investment during the estimated life by means of the average annual cash flow is the payout period including interest.
●This method tends to increase the payout period above that found with no interest charge and reflects advantages for projects that earn most of their profits during the early years of the service life.
●Analysis of Advantages and Disadvantages of various Profitability Measures for Comparing Alternatives;
onet present worth and discounted cash flow are the most generally acceptable and are recommended ocapitalized costs have limited utility but can serve to give useful and correct results when applied opayout period does not adequately consider the later years of the project life, does not consider working capital and is generally useful only for rough and preliminary analyses orates of return on original investment and average investment do not include the time value of money, require approximations for estimating average income and can give distorted results because of methods used for depreciation allowances.
●Example: A company has three alternative investments which are being considered. All three investments are for the same type of unit and yield the same service, only one of the investments can be accepted. The risk factors are the same for all cases. Company policies, based on the current economic situation, dictate that a minimum annual return on the original investment of 15 percent after taxes must be predicted for any unnecessary investment with interest on investment not included as a cost. ( investments yielding a 15 percent return after taxes are available) company policies also dictate that, where applicable straight line depreciation is to be used and for the time value of money interpretations end of the year cost and profit analysis is used. Land value and pre-set up costs can be ignored.
Given the following data, determine which investment, if any, should be made by alternative analysis profitability evaluation methods of
1.Rate of return on initial investment
2.Minimum payout period with no interest change
3.Discounted cash flow
4.Net present worth
5.Capitalized costs