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5.

0 Cost estimation
Number of working days per year
Cost of 1000 kg of acrylonitrile
Production of acrylonitrile
Gross sale for 1 year or total income
,

=
=
=
=
=

300.00
85,000.00
100,000.00
8,50,00,00,000.00
8,50,00,00,000.00

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ton
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Turn Over Ratio


It is defined as the ratio of total income to the fixed capital investment

i.e., TOR

For process industries turnover ratio is 1, thus,


Fixed Capital Investment (FCI) = Gross annual sales

Total Income
Fixed Capital
Investment

8,50,00,00,000.00

=
=

5,95,00,00,000.00
88, 06,24025.00

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`

But, Fixed Capital Investment = Direct cost + Indirect Cost


5.1.1 Direct Cost
Direct cost is taken as 70% of fixed capital investment

The cost involved are ,


i. Equipment cost
ii. Installation and piping cost
iii. Instrumentation cost
iv. Electrical cost
v. Piping cost
vi. Building, process and auxiliary cost
vii. Service facilities and yard improvement cost
vii. Land cost
Total

35%
6%
9%
10%
9%
7%
4%
20%
100%

2,08,25,00,000.00
35,70,00,000.00
53,55,00,000.00
59,50,00,000.00
53,55,00,000.00
41,65,00,000.00
23,80,00,000.00
1,19,00,00,000.00
5,95,00,00,000.00 `

5.1.2 Indirect cost


Indirect cost = Fixed Capital Investment - Direct Cost

=
i.e.,

2,55,00,00,000.00
2,55,00,00,000.00

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Indirect cost consists of following items,


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i.
ii.
iii.
i.

Engineering and supervision cost


Contingency
Working capital
Engineering and supervision cost. i.e, 6% of
direct cost

ii.

Contingency is 2% of direct cost

iii.

Working capital is 22% of direct cost

35,70,00,000.00

i.e,

35,70,00,000.00

=
i.e,

11,90,00,000.00
11,90,00,000.00 `

1,30,90,00,000.00
1,30,90,000.00

=
i.e.,

1,78,50,00,000.00
1,78,50,00,000.00

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`

Therefore, total working capital = fixed capital + working capital =


i.e.,

9,80,90,00,000.00
9,80,90,00,000.00

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Total
,

5.1.3 Estimation of total product cost


Total Annual income
Gross earning is 10% of annual income

=
=
i.e.,

8,50,00,00,000.00 `
85,00,00,000.00 `
85,00,00,000.00 `

Product cost = Total annula income - Gross earnings

=
i.e.,

7,65,00,00,000.00
7,65,00,00,000.00

`
`

4,59,00,00,000.00

It is 5% of toal product cost

38,25,00,000.00

Operating labour cost


It can be taken as 15% of total product cost

1,14,75,00,000.00

7,14,00,000.00

Direct production Cost


It can be taken as 60% of total product cost
Raw materials cost

Direct supervisory and clinical labour cost


It is 20% of operating labour cost

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Utilities
It can be taken as 10% of total product cost

76,50,00,000.00

=
=

8,50,00,00,000.00
30,60,00,000.00

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`

=
=

35,70,00,000.00
2,39,19,000.00

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`

=
=

8,50,00,00,000.00
12,75,00,000.00

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`

76,50,00,000.00

Maintenance and repair cost


It is 3.6% of fixed capital investment cost

Laboratory Charges
It is taken as 6.7% of operating labour cost

Royalities
It can be taken as 1.5% of fixed capital cost
Fixed Charges
It can be taken as 10% of product cost
Plant overheads
This includes the cost of general house packaging, medical services, safety and protection
recreation, sewage, laboratories and storage facilities
=

38,25,00,000.00

Depreciation for machinery is 10% of fixed capital cost

=
=

8,50,00,00,000.00
85,00,00,000.00

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`

Depreciation of building is 3% of the land cost

=
=
=
=

1,19,00,00,000.00
3,57,00,000.00
88,57,00,000.00
88,57,00,000.00

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`
`

=
=

8,50,00,00,000.00
8,50,00,000.00

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`

It is 5% of total product cost


Depreciation

Total depreciation value is 13%


Depreciable capital investment is

Insurance
It is 1% of the fixed capital cost

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Rent value
It is 2% of the total product cost

15,30,00,000.00

General expenses
Administrative cost includes cost of officers, legal fees, office supplier and communications.
It is 4% of the total product cost

30,60,00,000.00 `

45,90,00,000.00

7,65,00,000.00

15,30,00,000.00

Distribution and selling cost


It accounts for 6% of total product cost
Research and development cost
It is 1% of total product cost
Financing
It is 2% of the total product cost
Net Profit
It is obtained after deduction of taxes from the gross earnings.
Net Profit is 40% of gross earnings

=
=

8,50,00,00,000.00 `
3,40,00,00,000.00 `

5.1.4 Determination of Pay-Back Period


Pay-back period

Pay-back period

Depreciable fixed capital investment


(Average profit + Average depreciation)
1
1

year

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