FCI Extrapolation Method

There are four reference plant that was found for setting the base plant for
calculation using extrapolation method.
Table 1. Reference Plant[1-4]

Brand
Corona
Tsingtao
Constella
tion
Bluetoun
ge

Capital
Cost
150,000,00
0
123,733,67
2
1,500,000,
000
120,000,00
0

Curren
cy
USD

USD

USD

2
0
1.
5

USD

Capacity
MHL/annu
m
MHL/annu
m
MHL/annu
m
MHL/annu
m

Locati
on
Mexico
China
Mexico
Austral
ia

However, based on the table, Constellation brewery cannot be used as a

reference plant since the production capacity is extremely higher compared with
CUB brewery which only produce 4 mhL/annum[5]. This calculation in base on
assumption that the capital cost is only the cost for building a plant, excluding
the land cost, startup cost and working capital. The reason of this assumption is
because it is hard to determine what consist in the capital cost found in the
newsletter and the time constraint. The estimated capital cost is calculated using
equation :
Equation 1. Extrapolation Method[6]

IP Qp b F p Lp
=
.
.
. Ex
Ir
Qr
Fr
Lr

( ) ( )( )

Where :
Ir = Capital Cost reference plant (USD)
Ip = Capital Cost proposed plant (USD)
Qr = Production Capacity reference plant
Qp = Production Capacity proposed plant
Fr = Inflation Index at year reference plant
Fp = Inflation Index at year proposed plant
Lr = Location Factor of reference plant
Lp = Location Factor of proposed plant

b = Capacity Scaling factor

Ex = Exchange Rate from USD-Local Currency

Location Factor
The location of the reference plant need to be taken into consideration when
estimating capital cost of new plant. The difference in the location factor is
caused by exchange rate, labour cost and import cost. Since the location factor
found in the handbook is in 2003, it has to be converted to 2016 by using
exchange rate as an indicator of inflation.
Table 2. Location Factor [7]

Location

Mexico
Australia
China

Location
Factor
(2003)

1.03
1.21
1.12

Exchange Rate
2003
USDLocal
10.36
1.78
8.28

Exchange Rate
2016

USD/Lo
cal
0.10
0.56
0.12

USDLocal
17.35
1.31
17.35

Location
Factor
(2016)

USD/Lo
cal
0.06
0.77
0.06

0.62
1.65
0.53

Production Capacity
Production capacity is effecting the capital cost since the bigger the capacity it
will affect the cost of the equipment. However, the scaling is not exactly linear
since sometimes the higher the capacity of the equipment it can be cheaper
compared with the smaller equipment by scale. It also determined by the type of
the process. Single stream has a lower value of b (0.5-0.6) while for parallel
stream it has a higher value of b (0.8-0.9)[6]. Since Beer processing plant has a
single stream, thus the b value is determined to be 0.6.

Inflation Factor
Exchange Rate and rate of inflation has a direct impact on the price of the
equipment and land. In this method, the inflation data is using Chemical
Engineering Cost Index and Marshal Swift Cost index.
Table 3. Cost Index

Chemical
Engineeri
ng Cost
Index
201 560.
5
7
201 585.
1
7

Marshal
Swift
Cost
Index
1976.6
1934

Using extrapolation factor the estimated capital cost can be calculated to be :

IP Qp b F p Lp
=
.
.
. Ex
Ir
Qr
Fr
Lr

( ) ( )( )

Locatio
n

Corona
Tsingtao
Bluetoun
ge

Capi
tal
Cost

Curre
ncy

Capacity
(MHL/yea
r)

Locati
on

150 MUSD

Mexico

123,7 MUSD

China

120 MUSD

1.5

Austral
ia
Averag
e
Select
ed
Value
FCI
2020
Land
cost
Startu
p-cost
Total
FCI

Estimated Capital
Cost (2016)
Marsh
al
Swift
Index
CEPCI Index
Mil
411.33 411.33 AUD
Mil
357.92 382.11 AUD
Mil
270.34 288.61 AUD
Mil
346.53 360.69 AUD
350.00 Mil AUD
386.81 Mil AUD
Mill
118.57 AUD
Mill
11.60 AUD
Mill
516.98 AUD

The example calculation of FCI can be shown below :

IP Qp
F
L
=
. p . p . Ex
Ir
Qr
Fr
Lr

( ) ( )( )

Corona Brewery
Capital Cost : 150 MUSD
Capacity : 5 MHL/Year
Location : Mexico
Year built : 2016
b : 0.6
CEPCI Index : 2015 : 560.7
Exchange Rate : 1 USD : 1.3064 AUD

IP
4 Mhl
=
150 M
5 Mhl

0.6

1.65
.(
.1.3064
) .( 560.7
)
560.7 0.62 )

I P=411.33 MUSD
There are slight different of calculation of estimated capital cost of using
Chemical Engineering Cost Index with capital cost that is calculated using
marshal swift. It means both of the method can be used. The estimated cost for
the propose plant is determined by taking the average of three estimated plant
cost and select the middle value between the calculation using marshal swift and
Chemical Engineering Plant Index which is 350 MilAUD. Although in literature the
accuracy of this method is 30-40%, in this case, the accuracy is lower to (10%20%) since there are a lot of unknown variables and assumptions. Since this is
still a preliminary calculation, lower accuracy is acceptable in earlier stage in
order to determine the ballpark figure of the project and determine whether it
can be proceed further or not. In order to increase the accuracy of the estimation
capital cost, another method such as guthirre method or bare module factor can
be used since it calculates the individual cost into up to the detailed information
such as material selection. Lastly, the commissioning of the plant will be
estimated around 2020, the calculated capital cost need to be converted using
the predicted inflation value to determine the capital cost in 2020.
The calculation will be explained below,

I 2020 If 2020
=
I 2016 If 2016

( )

I 2020
119.8
=
350 MAUD 108.4

I 2020 =386.81 Mil AUD

In addition, since the Extrapolation method only estimate the cost of building a
plant, the land cost need to be added, it is found that the cost of land in Altona is
118.57 MilAUD. In addition, the startup cost is defined to be 3% of the total
capital cost which gives 11.60 MAUD, finally the total FCI become 517.09 Mil
AUD. However, since the land for abbotsford brewery is planned to be sold as a
residential area, the money get from selling the land is 205.746 MilAUD, and
assuming that the money will be added as additional revenue. The final FCI is
calculated to be 311.344 MAUD.

Operating Cost
The method that is used to calculate the operating cost is using the factored
approach, where it can approximate estimates and comparing processing
alternatives by using total cost of raw material and fixed capital investment. The
equation that is used is

C M =C R +CU +k L L+k I I
CM

Where :

= Manufacturing Cost

CR

= Raw Material Cost

CU

= Utilities Costs

kL

= Factor for process labour cost, supervision, payroll

overheads

= process labour cost

kI

= Factor of fixed capital expenditure, accounting, maintenance

= Fixed Capital Expenditure

The cost can be separated into two categories, the direct cost and indirect
cost.

Direct Cost

Typical
Value

Raw Material

CR

b
c

Utilities
Process Labour

CU
L

Process Supervision

0.15 L

Payroll Charges

f
g
h
j
k

Maintenance
Operating Supplies
Laboratory
Royalty
Contingency
Indirect Cost

l
m
n
o
p
q
r

Rates
Insurance
Overheads
Administration
Research
Distribution and
Selling
Contingency

0.15
(C+D)
0.02I
0.005 I
0.03 L
0L
0.01 (a-J)
Typical
Value
0.03 I
0.02 I
0.5 L
0.02 I
0.0015 S

Low Level
technology
Developing
Country
Mild Condition
Simple Process
Bulk Product
Own Process
Low Uncetainty

Developed Area
Medium Risk
Large Plant
Large Orders
Mature Product

0.02 S

Matrue Product

0.03 (l-N)

Low Uncretainty

Raw Material
The raw material cost can be estimated using two methods, the first one is by
breaking down all the important raw material for making a beer which is
Barley/malt, hops and yeast. In this case, the cost of yeast can be neglected
since the pure yeast strain is sent in slice from store house in UK. The other
reason is because the mature yeast can be used up to 10 times and the cost of
growing the yeast can be substituted by the sale value of used yeast to food
industry. The second method is by calculating the raw material cost using the
reference annual report of well known beer producer to give the estimate raw
material cost.
Raw Material Breakdown
Based on the percentage of the revenue generated in the full capacity, the
breakdown of the raw material can be predicted. The assumption is that the total
of the raw material cost will be constant throughout the year
The breakdown of the raw material is shown in below table :
Revenue
Total Purchases Raw
Material
Packaging raw mat

Mill/ye
800 ar
53.8 % of Total
Revenue
60% of Total

Mill/Ye
430.4 ar
258.2 Mill/Ye

Purchase
18% of Total
Purchase

Malt
Sugar

0.04

Hops
Yeast

0.02

4
77.47
2
17.21
6

ar
Mill/Ye
ar
Mill/Ye
ar
Mill/Ye
8.608 ar

Negligible
Mill/Ye
430.4 ar

Based on the value calculated, the cost of raw material per volume beer
produced :

Mill
year
=1.076 AUD /L
400 Ml

430.4
Raw material cost=

The second method that is used for calculating the raw material is based on the
annual report of a reference plant available. In this method, Heineken brand is
chosen as a reference.
Raw material cost reference plant globally : 12053 MEuro/year = 17.96 Billion
AUD
Global Beer production Heineken : 181.3 MHl
Cost of raw material/beer produced : 17.96 Billion AUD/181.3 MHl = 0.99 AUD/L
Since the calculation of raw material using both method give a similar result, the
raw material cost is determined to be 1 AUD/L

Fixed Capital Expenditure

The fixed capital expenditure is assumed has the same value as the total cost of
purchase equipment. In order to determine the total cost of the purchased
equipment, Lang factor method is used based on the estimated FCI. FCI that is
calculated from the extrapolation method is predicted to be 517.09 MAUD. Using
the equation for Lang Factor, the
total purchased equipment cost can be
determined.

FCI=f l x Equipment Cost

The Lang factor

fl

is assumed to be 5 since the process of making a beer is a

Solid-fluid process equipment type.

517.09 MAUD=5 x Equipment Cost

 Equipment Cost=103.418 MAUD

Due to the time limit and sources, it is unable to calculate each single equipment
cost. However, using the Lang factor method, it give a reasonable assumption for
the total equipment cost and it can be assumed the same as the fixed capital
expenditure.

Labour Cost
The Calculation of labour cost is based on assumption of Labour salary 25
AUD/hr, where based on company presentation, the number of labour in the
company is 250 person. The labour cost determined to be :

Labour Cost :250 x 24

Hr
days
Weeks
Month
AUD
x5
x4
x 12
x 25
=36 MAUD /Year
day
week
Month
year
Hr

Utilities Cost
The two major utility cost that is calculated to estimate the total utility cost is
Water Cost and Electricity Cost. These two cost is used since it makes up the
majority of the utility cost. The electricity is used to power up the major boiler
with capacity of 30 MW and refrigeration system with a capacity of 12.5 MW.
Based on a rate of electricity cost 0.0294 AUD/MWh and water cost with rate of
2.661 AUD/Kl, the total utility cost for 4Mhl beer production plant is 5.09
MAUD/year. These calculation is based on assumption of the boiler and
refrigeration system are not turned off during weekend and the electricity
required to keep the boiler and refrigerant in constant temperature is lower
compared with the electricity required of starting up the boiler and refrigerant. In
water utilities cost, the assumption is that for 1 HL beer produced the water
requirement is 3.2 HL including water required for beer ingridients and other
purposes such as cleaning, stripping CO 2 and sterilizing the beer.
Based on three major cost of the plant, the breakdown of the direct and indirect
cost of the plant can be determined as :
FCI
Startup
Raw Material
Utilities
Labour Cost
Process
Supervision
Payroll Charges

516.9 MAUD/Ye
8 ar
MAUD/Ye
15.51 ar
MAUD/Ye
430.4 ar
MAUD/Ye
5.09 ar
MAUD/Ye
36 ar
MUSD/Ye
5.4 ar
6.21 MUSD/Ye

Maintenace

2.07

Operating Supplies

0.52

Laboratory

1.08

Royalty

Contingency

4.87

Rates

3.10

Insurance

2.07

Overheads
Administyarion
Research
Distribution and
Selling
Contingency
Operating Cost

18
2.07
1.2
16
1.27
530.2
5

ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar
MUSD/Ye
ar

The Second Options reusing all the equipment except fermenter and masher.
In order to evaluate this options, the cost of buying Fermenter and Mashers need
to be calculated. The specification and the number of the fermenter and mashers
that need be bought is assumed the same as the current CUB plant, which is 24
x 6600 HL fermenter and 2 x 1000 HL brewing capacity for mashers. However,
since the price for equipment with this specification is not publicly available, the
cost of fermenter and mashers is predicted based on extrapolation method. The
accuracy of this method is very low (< 15%) since the range of extrapolation is
more than 100 times of its size however, it can be used to give an insight of the
cost that will occurs. In addition, this calculation also excluding the transport cost
of moving all the piping and bottling equipment into new site and import cost of
buying new fermenter and mashers. The calculation of fermenter and mashers is
shown below.

Type Equipment

Mashers

Available Data
Capacity
Price
CUB Quantity
Capacity
Price

Number of Equipment
Total Price
Type Equipment
Available Data
Capacity
Price
CUB Quantity
Assume all fermenter
Time Fill
Work Time
Total Fermenter
Quanty/week
1 Year
Quantity /Year
Capacity
Price

Number of Equipment
Total Price
Investment for all new
Equipment
Investment for reuse all
Equipment
Percentage of Masher and
Fermenter

4,000 L/Brew
347,000 Euro
100,000
2,393,831
3,566,808
3.57
2
7.13

L/Brew
euro
AUD
Mil AUD
Mil AUD

Fermenter
500,000 L/Year
221,000 Euro
2,500 hL
10 Hr
5 days/week
30,000
52
1,560,000
156,000,000
6,932,423
10,329,310
10.33
Assumed in total
capacity
10.33

hL/Week
Week
hL/year
L/Year
Euro
AUD
Mil Aud

Mil Aud

517 Mil Aud

17.46 Mil Aud
Of total equipment
3.38% cost

Based on the calculation, the fermenter and masher only accounts for 3.38
% from total equipment cost that makes it viable to move all the equipment to
the new site. This calculation make senses since the fermenter and masher is a
simple equipment compared with the bottling equipment which more complex
and sophisticated. However, this should take an account that since the beer
production system is a single stream process where the next stage cannot go
through except the prerequisites process has been done. This makes moving the
individual equipment hard. From an assumption of 5 years, 2 years will be
allocated for setting up the land and building and the rest 3 years will be a

downtime for moving the equipment. Based on the cash flow calculation, the
average profit each year is calculated to be 103 MAUD/Year thus, the total profit
loss is 309 MAUD/Year which is 59.76% of the cost building a new plant with
whole new equipment. Based on this assumption and calculation, this options is
not viable.

Production Capacity
The production capacity is using the basis of CUB Abbotsford site which is 4
mhL/year [5]. In addition, the capacity of the new plant is assumed to be 50% of
its maximum capacity in its first year, 75% of maximum capacity at year 2 and
lastly full capacity at third year.

Sales Price
Sales Price is determined based on the manufacturing cost of the product and
gross margin of 50% [8].

Gross Margin ( )=( RevenueManufacturing Cost ) / Revenue

0.5= ( RevenueManufacturing Cost ) / Revenue
0.5 Revenue= ( RevenueManufacturing Cost )
Revenue=2 Manufacturing Cost
Manufacturing cost is calculated to be AUD $ 431.97 mill/Year using raw material
cost and labour cost to determine the selling cost. The revenue is calculated to
be AUD $ 863.94 mill/Year. The sales price is calculated to be :

Sales Price=Revenue /Sales Volume

Sales Price=863.94 MAUD /4 MHl

Selling Price=2.15 AUD /L

Based on the calculation, the sales price is determined to be AUD $2 per L beer
produced.

1.

2.
3.
4.

5.
6.
7.

Cheryl Gossin, A.M. Constellation Brands To Build New 10 Million Hectoliter

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http://www.globalmalt.de/english-china-tsingtao-to-open-new-brewery-injieyang/?lang=en.
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2nd ed.
8.
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https://en.wikipedia.org/wiki/Gross_margin.