ECH 355 3/7

Source of Equipment

One of the major costs. Standard sizes have a substantial reduction in cost. More strict limitations in design = more costly equipment.

Price Fluctuations

Prices such as labor costs and equipment costs can vary from one period to another. Need to stay on top of current prices in estimates.

Company policies

Policies of individual companies – such as safety regulations, accounting procedures and methods for allocating corporate costs, and policies with labor unions – have a direct effect on costs.

Government policies

National government has laws that can have a direct effect on industrial costs through things like tariff regulations, depreciation rates, income tax rules, and environmental and safety regulation

Operating time and rate of production

A major effect on the profits is the fraction of time a process is in operation

Sales demand, rate of production, and operating time are closely related

Breakeven Point

Cost = Income

Direct Costs

Equipment, Equipment Installation, Instrumentation and Controls, Piping, and Electrical Systems, Buildings, Yard Improvements, Service Facilities, Land

Indirect Costs

Engineering/Supervision, Legal Expenses, Construction Expenses, Contractor’s Fee, Contingency

Order of Magnitude Estimate

Class 5, Done in Step 1

Study Estimate

Class 4, Done in Step 2

Preliminary Estimate

Class 4, Done in Step 3

Definitive Estimate

Class 3, Done in Step 3

Detailed Estimate

Class 2, Done in Step 4

Check Estimate

Class 1, Done in Step 5

Manufacturing FCI

Capital necessary for the installed process
equipment with all components that are needed
for complete process operation.

Non-Manufacturing FCI

Capital required for the construction overhead
and for all plant components that are not
directly related to the process operation

Construction Overhead Costs

Includes field office and supervision expenses, home office expenses, engineering expenses,
miscellaneous construction costs, contractor’s fees, and contingencies

Working Capital

The capital necessary for the operation of the plant is the working capital (WC)

Working Capital amount

Roughly 10-20% of the TCI, but can go up to 50% of TCI for companies with seasonal products due to large inventories that need to be maintained.