OPERATING COST ESTIMATE
FACTORS
BUDGETS
OPERATING COST BUDGET SHEET
• BUDGET COMPONENTS
– CAN BE PLACED IN CATEGORIES
– BASED ON THE FORMULAS USED FOR
COSTS CALCULATIONS
• COST CAN BE DETERMINED PER
SPECIFIED UNIT OF PRODUCTION –
UNIT COST
MODEL FOR BUDGETS
• CONSIDER AN AUTOMOBILE
• CAPITAL INVESTMENT IS THE COST
FOR THE CAR
• ANNUAL COSTS OF AUTOMOBILE
OPERATION ARE THE BASIS FOR THE
BUDGET
http://www.mixedpower.com/index.php
COST CATEGORIES
•
FIXED COSTS REQUIRE NO DRIVING
AT ALL
http://www.allaccess– INSURANCE
– LICENSE
•
insurance.com/Insuran
ce_California_autos_c
ars_motorcycles.jpg
VARIABLE COSTS ARE BASED ON
MILEAGE
– GAS
– OIL
http://skeptically.org/site
buildercontent/sitebuilde
rpictures/.pond/suvecon-gaspump.jpg.w300h294.jpg
COST CATEGORIES
•
REGULATED COSTS ARE A
FUNCTION OF MILEAGE, BUT NOT
NECESSARILY LINEAR
– TIRES
– BRAKES
– OTHER NON-ROUTINE
MAINTENANCE
http://www.denniskirk.com/denniskirk/b2c/imag
ecenter/images/street_tiremount.jpg
APPLICATION TO PRODUCTION
FACILITIES
•
•
VARIABLE - REQUIRE YIELDS FROM
PROCESS DESIGN AND PRICES FROM
VARIOUS SOURCES
FIXED - ARE BASED ON VARIOUS OTHER
COMPONENTS
•
•
•
•
CAPITAL BASED COMPONENTS - MAINTENANCE,
INSURANCE & TAXES, FACTORY EXPENSE,
DEPRECIATION
LABOR BASED - LABORATORY
SALES BASED - RESEARCH (USING ANNUAL
PROJECTED REVENUES)
REGULATED - BASED ON ACTUAL
NUMBER OF LABOR UNITS REQUIRED.
COST SHEET
•
•
VALUES FOR AN OPERATING BUDGET
ARE PRESENTED ON SOME
ORGANIZATIONS CALL A COST SHEET
COSTS ARE ENTERED ACCORDING TO
THE TYPE OF COMPONENT
–
–
–
–
THE COSTS ARE PRESENTED IN A FORMAT
THAT ALLOWS DETERMINATION OF THE
IMPACT OF EACH COMPONENT ON THE TOTAL
COST
TYPICAL BASES ARE COST PER MASS UNIT
THE MASS UNITS MAY BE VERY LARGE FOR
HIGH VOLUME PRODUCTS
MASS UNITS FOR PHARMACEUTICALS ARE
TYPICALLY PER GRAM OR SMALLER
BUDGET SHEETS FOR PROJECTS
BUDGET SHEETS FOR PROJECTS
BUDGET SHEETS IN ECONOMIC
ANALYSES
•
•
•
UNIT COSTS ARE USED TO CALCULATE
THE C.O.M. COLUMN FOR THE CASH
FLOW ANALYSES
ALL VALUES ARE CONVERTED TO A UNIT
PRICE TO GET THE TOTAL C.O.M., BUT
THIS MUST BE ADJUSTED IF THE
PRODUCTION RATE IS CHANGED.
DEPRECIATION REMAINS IN THE C.O.M.
COLUMN UNLESS IT HAS A SEPARATE
COLUMN FOR ENTRY (BASED ON THE
SCHEDULE USED FOR THE ANALYSIS)
BUDGETS ARE PRODUCED ANNUALLY
•
•
THESE ARE USED TO PREDICT THE
PROFITABILITY OF THE COMPANY
SUPERVISOR’S ALSO USE THEM TO
ASSESS THE PERFORMANCE OF THE
PLANT
CALCULATION OF COSTS FOR THE
PROJECT
•
VARIABLE COSTS DATA SHOULD
COME FROM SIMULATION
– RAW MATERIALS
•
•
CONSUMPTION DEPENDS ON YIELDS
PRICES FROM CHEM. MKTG. RPTR.
– UTILITY COSTS DEPEND ON
EFFICIENCIES
•
•
DATA IN MEMO SPECIFIES VALUES IF MORE
CURRENT DATA ARE NOT AVAILABLE.
http://www.energy.ca.gov/electricity/FOR
CURRENT DATA
REGULATED COSTS
•
OPERATING LABOR
– DETERMINE NUMBER OF OPERATORS
– HOURLY COST = $25/HR OR GO TO
http://www.bls.gov/ FOR CURRENT
VALUES
– ACTUAL PAY SHOULD INCLUDE
TRAINING AND OVERTIME (10%)
– OVERHEAD MULTIPLIER = 35% ON BASE
http://www.powertechnology.com/projects/avedore/im
ages/avedore5.jpg
REGULATED COSTS
http://www.arvon.com/foreman.JPG
•
•
SUPERVISION
FOREMAN
–
ONE TO THREE, DEPENDING ON
COMPLEXITY OF PROCESS
– SALARY = $60K/YR
– OVERHEAD = 35%
•
SUPERVISOR
http://www.timescan.com/jansenimages/home_B2-foreman.jpg
– 1 PER PLANT
– ASSUME ANNUAL SALARY = $65K/YR
– OVERHEAD = 35%
REGULATED COSTS
•
MAINTENANCE
– DETERMINE NUMBER FROM FUNCTION BUT NO MORE THAN 2 PER PLANT
EQUIVALENT FULL TIME
– HOURLY COST = $28/HR
– ACTUAL PAY SHOULD INCLUDE
TRAINING AND OVERTIME (10%)
– OVERHEAD MULTIPLIER = 35% ON BASE
https://www.getransportation.com/gene
ral/global_signaling/services/images/m
aintenance.jpg
MAINTENANCE SUPERVISION
•
ONE MAINTENANCE FOREMAN PER
10 MAINTENANCE PERSONNEL
– SALARY = $60K/YR
– OVERHEAD = 35%
•
MAINTENANCE SUPERVISOR
– 1 PER 4 MAINTENANCE FOREMAN
– ASSUME ANNUAL SALARY = $65K/YR
– OVERHEAD = 35%
REGULATED COSTS
•
NON-OPERATION/MAINTENANCE OVERHEAD
–
–
•
INCLUDES ALL ADMINISTRATIVE FUNCTIONS
ASSUME 18% OF BASE OPERATING SALARIES (WHICH
INCLUDES OVERHEADS)
ENGINEERING
–
–
–
•
ASSUME 2 EQUIVALENT FULL-TIME ENGINEERS PER
PLANT
ANNUAL SALARY = $60K
OVERHEAD (INCLUDING SUPERVISION) = 50%
LAB COSTS
–
–
–
ASSUME 1 EQUIVALENT FULL-TIME CHEMIST PER
PROCESS
ANNUAL SALARY = $50K/YEAR
OVERHEAD (INCLUDING SUPERVISION) = 50%
•
•
CAPITAL BASED OPERATING
COMPONENTS (EXCLUDING
CUSTOM SPARES)
MAINTENANCE PARTS SHOULD RUN
BETWEEN 3 - 5% OF DFC PER YEAR
(EXCLUDING MAINTENANCE LABOR)
INSURANCE AND TAXES SHOULD BE
~ 3% DFC PER YEAR
http://www.radra.com/images/robotic_accessories_main
tenance_service_spare_parts_warehouse
.jpg
CORPORATE FACTORS
•
SET BY EACH COMPANY
– RESEARCH - 5% DFC
– SALES - 7% OF SALES
•
GENERAL AND ADMINISTRATION 2% DFC/YEAR
http://www.ion.ucl.ac.uk/images/Rese
arch-Lab.jpg
USE OF BUDGET FOR CALCULATIONS
•
•
•
BREAK EVEN CALCULATION
COSTS CAN BE PLOTTED TO
DETERMINE THE MINIMUM
REQUIRED OPERATING LEVEL
BREAK-EVEN POINT IS WHERE
TOTAL REVENUES = TOTAL COM
– ABOVE THIS LEVEL, THERE IS A PROFIT
– BELOW THIS LEVEL THERE IS A LOSS
•
SHUT DOWN POINT IS WHERE
LOSSES = FIXED COSTS
TYPICAL BREAK-EVEN ANALYSIS
GRAPH
P R O F IT
S H U T D O W N PO IN T
LOS S
B R E A K- EV E N PO IN T
F IX E D C O S TS
P R O D U C T IO N R AT E
BREAK-EVEN ANALYSIS
http://www.dwmbeancounter.com/chart.gif
•
•
CAN INCLUDE COST ADJUSTMENTS
AS A FUNCTION OF PRODUCTION
RATES
IS BASED ON AN ANNUAL
INTEGRATED PRODUCTION, SO
REMOVES SEASONAL VARIATIONS
http://content.answers.com/main/content/i
mg/barrons/accounting/images/1-A2.jpg
EXAMPLE FOR ADIPIC ACID
• From Tony Pavone
• Comparison of two cases
200
100
0
1
-100
-200
-300
-400
-500
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