Class 17

Cost Accounting
and
Capital Estimation
 Cost Estimation
1. Mass & Energy Balances from Chemical Engineering
1st Principles (production rate, process requirements,
equipment parameters) HYSYS or ASPENPLUS

2. Equipment Performance Specifications (minimum required

to estimate purchased equipment cost - PE)

3. Fixed (FCI) or Total Permanent Investment (TPI) & Total

Capital (TCI) Investment (from PE)

4. Total Product Cost (TPC) from mass & energy balances

(materials, utilities) and FCI (or TPI)
 Capital Cost Estimation (Types)

Order of Magnitude (> ± 30%); based on similar previous

cost data (ratio estimates)
Study (< ± 30%); based on knowledge of major pieces of
equipment (factored estimate)
Preliminary (< ± 20%); based on sufficient data to estimate the
capital budget - more detailed engineering (scope or
budget authorization estimate)
Definitive (< ± 10%); based on almost complete data (before final
drawings)(project control estimate)
Detailed (< ± 5%); based on complete engineering drawings,
specifications, & site survey (contractor’s estimate)
 Study Estimate

This type of estimate utilizes a list of the major equipment

found in the process. This includes all pumps, reactors,
compressors and turbines, columns and vessels, fired heaters
and exchangers. Each piece of equipment is roughly sized
and the appropriate cost determined. The total cost of
equipment is then factored to give the estimated capital cost.

Basis: Process Flow diagram (like from HYSYSTM)

Costs: From Generalized Charts
 Ratio Factors for
Estimating
Capital Investment
based
on Delivered
Equipment Cost
Peters and
Timmerhaus (1991)

Note: Delivered
Equipment
Cost includes Freight,
Taxes,
& Insurance (you
must add
this to purchased
equipment
cost, maybe 5 to 7%)
Effect of Capacity on Purchased
Equipment Cost
CPa Aa
⎯ = [⎯]n
CPb Ab

A = Equipment cost attribute

CP = Purchased cost
n = Cost exponent
a = refers to equipment with the desired attribute
b = refers to equipment with the base attribute
 The 0.6 (six tenths) Rule !
(Economy of Scale)

CPa Aa
⎯ = [⎯]n
CPb Ab

Note: The value of the cost exponent,n, varies depending

upon the class of equipment being represented. The
value of n for different equipment is often around 0.6
The purchased cost vs. capacity curve
for a single stage air blower
 Example (Economy of Scale!)
The purchased cost of a recently acquired carbon steel constructed
shell & tube heat exchanger (fixed sheet) with an area of 100 m2
was $10,000. Determine the cost of a new heat exchanger of 180 m2
area?

n = 0.44 for this type of equipment

Therefore,

Aa
CPa = CPb [⎯]n = ($10,000)(180/100)0.44 = $12,951
Ab
Note: In general, the larger the equipment the lower the cost of
equipment per unit of capacity (but, not always true)
When n is > 1, it is lower cost to run two units
in parallel than to purchase 1 larger unit

Example: Jaw crushers (n = 1.15)

Effect of Time on Purchased
Equipment Cost

I2
CP2 = CP1 [⎯]
I1

I = Cost Index (from published inflation indices)

CP = Purchased cost
1 = refers to base time when cost is known
2 = refers to time when cost is desired
CE – Chemical Engineering
Plant Index

MS – Marshall and Swift

Equipment Cost Index

NF – Nelson – Farrar Refinery

Construction Const Index

ENR – Engineering News Record

Construction Cost Index

CPI is the US. Consumer Price

Index

(Use CE and MS)

 January, 1999 Issue of Chemical Engineering

I M&S (4th Qtr, 1998)

= 1062.3

2nd Qtr, 2007

M & S =1383.6
 Example (Combined Size & Time)
The purchased cost of a carbon steel constructed shell & tube heat
exchanger (fixed sheet) with an area of 100 m2 was $10,000 in
mid - 1978 according to company records. Determine the cost of a
new heat exchanger of 180 m2 area today?

n = 0.44 for this type of equipment

IM&S 1978 = 552, IM&S today = 1384

Aa I2
CP2a = CP1b [⎯]n [⎯]
Ab I1

= ($10,000)(180/100)0.44(1384/552) = $32,473
Example (Using Cost Figure from Peters
and Timmerhaus, 1991)

Estimate the purchased cost of a 25,000 gallon

atmospheric pressure carbon steel storage tank
today (2nd Quarter, 2007)
Figure 14-56 from Peters & Timmerhaus (1991)
Cost of Mixing, Storage,and Pressure Tanks
From graph, a $25,000 gallon carbon steel storage tank
cost about $32,500 in January, 1990 (I M&S = 904)

IM&S 2007 (estimated) = 1384

M&S for today: 1384

Therefore, the tank purchased tank cost is:

$32,500 (1384/904) = $49,757
 Using Table 16.32 in text (page 556)
Cone Roof, Carbon Steel, P to 3psig

Cp = 210 (V0.51)
V is volume in gallons
Cp is U.S. $

Cp = 210 (25,000 gal0.51) = $36,742

Important: Table 16.32 is based on CE = 394
CE (Today, early 2008) = 550
Cp (today) = $36,742 (550/ 394) = $51,290
Sources for Purchased Equipment Costs
Correction Factors for
Operating Pressure,
Temperature, and Materials
of Construction for Major
Plant Items [Peters and
Timmerhaus, 1990]

Note: If P, T, or Materials
of Construction are noted
on Specific Graphs or Tables,
use those first
Reciprocating Plunger Pumps
Materials Factors (page 512)
Fans, Blower, Compressors
Page 516
In general,
if nothing
specific is
given
FM = a + b (A/100); A = surface area in ft2
Shell & Tube Heat Exchangers
Estimating Total Capital Investment (TCI)

(= CFCI)
 Lang Factor Method
CTPI (or CFCI) = 1.05 fLΣCPi

Σ Cpi is sum of purchased major equipment cost;

1.05 covers delivery cost to the plant

fL C TCI Lang Factor

Solids Processing Plant 3.9 4.6
Solids-Fluid Processing Plant 4.1 4.9
Fluid Processing Plant 4.8 5.7
 Ratio Factors for
Estimating
Capital Investment
based
on Delivered
Equipment Cost
Peters and
Timmerhaus (1991)

Note: Delivered
Equipment
Cost includes Freight,
Taxes,
& Insurance (you
must add
this to purchased
equipment
cost, maybe 5 to 7%)