CH0401 Process Engineering Economics. Balasubramanian S. Chapter 2 Balance Sheet and Cost Accounting. Lecture 2

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1 H040 Process Engineering Economics hapter Balance Sheet and ost Accounting Lecture Balasubramanian S Department of hemical Engineering SRM University

2 Process Engineering Economics apital requirements for process plants Balance Sheets Earnings, process and returns (ncome statements) Economic production, break even analysis charts ost accounting - pre construction cost estimation - allocation of cost. Balasubramanian S Department of hemical Engineering

3 Process Engineering Economics apital requirements for process plants Balance Sheets Earnings, process and returns (ncome statements) Economic production, break even analysis charts ost accounting - pre construction cost estimation - allocation of cost. Balasubramanian S Department of hemical Engineering 3

4 Process Engineering Economics apital Requirements apital Requirement for a Process Plant The capital required for building and equipment in the process industries varies with type of operation, the size of the plant and the time at which the investment is made Other factors that are operating to control the amount of investment in a proposed venture are the world economic condition and change in market supply and demand for the product for which the company is interested. Balasubramanian S Department of hemical Engineering 4

5 Process Engineering Economics apital Requirements apital Requirement for a Process Plant Many of these factors (world economic condition, market supply and demand) are irreducible and requires consideration by the management before a decision is made to proceed with the venture, but once the decision is made it is the engineer who must select the detail equipment items and determine their costs Balasubramanian S Department of hemical Engineering 5

6 Process Engineering Economics apital Requirements Process Equipment Process lassification of Process Equipment's Service or non process equipment Equipment actually used to process the equipment The Equipment and facilities necessary for providing the services to the process Heat Exchanger, Distillation olumns, Grinding equipment's etc., Water Supply and Distribution System Fuel Supply Storage and Distribution System Steam Generation and Distribution System etc. Balasubramanian S Department of hemical Engineering 6

7 Process Engineering Economics apital Requirements Methods for calculating the equipment cost Equipment ost alculations Use of ost ndex Number Use of apacity Factor or Size Factor (William six-tenth factor Balasubramanian S Department of hemical Engineering 7

8 Process Engineering Economics apital Requirements ost ndex A cost index may be defined as a dimensionless number which permits comparison of costs at various dates over a period of time from present back to any date in the past for which data are available Balasubramanian S Department of hemical Engineering 8

9 Process Engineering Economics apital Requirements Typical cost indices used are ENR onstruction ost ndex Material ost ndex Process Equipment ost ndex Marshal and Swift ndex hemical Engineering Process Plant ndex Balasubramanian S Department of hemical Engineering 9

10 Process Engineering Economics ost index Problems based on cost index An index value for a given point in time showing the cost at that time relative to a certain base time. f the cost at some time in the past is known, the equivalent cost at the present time can be determined by multiplying the original cost by the ratio of the present index value to the index value applicable when the original cost was obtained. Balasubramanian S Department of hemical Engineering 0

11 Process Engineering Economics ost index Problems based on cost index Formulas Used Where and are the ost ratio; and are the index values (or) Present ost Original ost ndex value at present time ndex value at time original cost was obtained Balasubramanian S Department of hemical Engineering

12 Process Engineering Economics ost index Problems based on cost index Example Problem A pump and motor installation costs $300 in 946. What is the estimated cost for similar installation in 954? The relative cost index for 946 compared to 954 is indicated by the relative process equipment cost index for two years which were 3 and 8 Data Available S. No. Year ost, $ ost ndex ? 8 Balasubramanian S Department of hemical Engineering

13 Process Engineering Economics ost index Solution $93.58 (or) Present ost Original ost 8 Present ost Present ost $93.58 ndex value at present time ndex value at time original cost was obtained Balasubramanian S Department of hemical Engineering 3

14 Process Engineering Economics ost index Problems based on apacity Factor Formulas Used S S a Where and are the ost ratio; S and S are the Size Factor/apacity factor or William Six-Tenth factor; a = 6/0 or 0.6 (exponent factor) Balasubramanian S Department of hemical Engineering 4

15 Process Engineering Economics ost index Problems based on apacity Factor Example Problem The Purchased cost of a 400 ft heat exchanger was $9000 in 979, when the cost index was 56. Estimate the cost of similar heat exchanger having 000 ft in 980 when the index was 688. Data Available S. No. Year ost, $ ost ndex apacity or Size ft 954? ft Balasubramanian S Department of hemical Engineering 5

16 Balasubramanian S Department of hemical Engineering 6 Process Engineering Economics ost index Problems based on apacity Factor Solution $ $ S S S S a a

17 Process Engineering Economics References Herbert E. Schweyer. (955) Process Engineering Economics, Mc Graw Hill Max S. Peters, Kaus D. Timmerhaus, Ronald E. West. (004) Plant Design and Economics for hemical Engineers, 5 th Ed., Mc Graw Hill Max Kurtz. (90) Engineering Economics for Professional Engineers Examinations, 3 rd Ed., Mc Graw Hill Frederic. Jelen, James H. Black. (985) ost and Optimization Engineering, nternational Student edition, Mc Graw Hill Grant L. E, Grant reson. W, Leavenworth S. R. (98) Principles of Engineering Economy, 7 th Ed., John Wiley and Sons. Balasubramanian S Department of hemical Engineering 7