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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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## 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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i.
ii.
iii.
i.

## Engineering and supervision cost

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

ii.

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

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
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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`
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=
=

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

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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 `

Pay-back period

Pay-back period

## Depreciable fixed capital investment

(Average profit + Average depreciation)
1
1

year

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