Cost Estimation

An acceptable plant design must present a process that is capable of operating

under conditions which will yield a profit. Since Net Profit equals total income minus all
expenses, it is essential that the Chemical Engineer be aware of the many different types of
costs involved in manufacturing processes.

A Capital Investment is required for any industrial process and determination of the
necessary investment is an important part of a plant design project. The total investment for any
process consists of Fixed Capital Investment for physical equipment and facilities in the plant plus
working capital which must be available to pay salaries, keep raw materials and products on
hand and handle other special items requiring a direct cash outlay. Thus in an analysis
including income taxes must be taken into consideration.

This report includes a detailed estimation of Costs incurred in a Manufacturing Plant

for the production of Active Pharmaceutical Ingredients (API's) extracted from Natural Plant
Sources. A detailed list required (based on the current data) has been included in each sheet,
making it feasible to add or delete data shown in " Yellow".

After successful addition or deletion of data in the sheets, a detailed spreadsheets,

Profitability Analysis Reports can be obtained providing Average Net Profit, Pay Back Period,
Rate of Return, Unit Product Cost.

All the amounts taken in the worksheets are in Rs.

 Cost Estimation

Estimation of Capital Investment

A detailed estimate is carried out based on the current data available.
The Break down of Fixed Capital Investment items are detailed as follows.

1) Purchased Equipment

S. No. Equip. Name Nos. Price in Rs. S. No. Equip. Name Nos. Price in Rs.
1 RE 1 654,300 24 SS304 Receiver 100lts 3 29,836
2 RFE 1 570,000 25 SS304 Receiver 75lts 1 7,852
3 WFE 1 458,010 26 SS304 Stand 1 9,160
4 36" Centrifuge 1 274,806 27 MS ST 6.0KL 2 70,664
5 24" Centrifuge 1 196,290 28 MS ST 500lts 2 25,518
6 24" Centrifuge GMP 1 412,209 29 SS304 VTD 24 Trays 1 257,139
7 SS316 Reactor 5.0KL 1 536,735 30 SS304 GMP VTD-24T 1 310,793
8 SS304 Reactor 1.2KL 2 348,088 31 SS304 Multi Mill GMP 1 39,258
9 SS304 Reactor 630lts 2 238,165 32 SS304 MM GMP R&D 1 22,900
10 SS304 Reactor 300lts 3 404,357 33 SS304 Candle Filters 2 26,172
11 SS304 Reactor 150lts 1 117,774 34 SS304 Receiver 250lts 1 19,629
12 SS304 ST 4.0KL 1 78,516
13 SS304 HE 6m2 9 288,546
14 SS304 ST 7.0KL 2 236,857
15 SS304 ST 1.0KL 1 35,332
16 SS304 ST 500lts 2 67,262
17 SS304 Steam pan 150lts 1 20,934
18 SS304 HE 10m2 1 52,344
19 SS304 H Receiver 300lts 1 18,059
20 SS304 P Tank 200lts 1 12,432
21 SS304 Receiver 200lts 10 124,317
22 SS304 HE 2m2 8 136,095
23 SS304 ST 500lts 3 96,182

Total Cost of Purchased Equipment = 6,196,531

2) Purchased Equipment Installation

Installation of all equipments listed, structural supports, insulation, paint

(Taken as 25% of the Purchased equipment cost) = 1549132.75
3) Instrumentation and Controls

S. No. Description Nos. Price in Rs. S. No. Description Nos. Price in Rs.
1 Pressure Gauge 0-7kg/cm2 44 11,918
2 Pressure Gauge 0-10kg/cm2 7 2,184
3 Temp. Gauge 4-50 deg C 6 8,206
4 Vacuum Gauge 0-760mm Hg 21 5,897
5 Water Flow Switch 1 1,352
6 U syphon & Cock 55 4,576
7 Safety Valves 8 2,080
8 Temp. Controller 3 8,486
9 Temp. Indicator 8 38,896
10 PID Controller 1 18,252
11 FLP Temp. Scanner 2 26,343
12 2/2 Pheumatic P.O valve 4 62,400

Total Cost of Instrumentation and Controls = 190,590

4) Piping
a) Process Piping

S. No. Description Nos. Price in Rs.

1 MS Pipes (all sizes) 360 460,789
2 SS Pipes (all sizes) 77.3 667,462
3 PVC Pipes and Fittings Lumpsum 48,627
4 GI Pipes 48 21,375

Total Cost of Process Piping = 1,198,253

 b) Pipe Hangers, Fittings, Valves, Beams, Channels etc.

S. No. Description Nos. Price in Rs.

1 H Beams, Channels, Angles, Checkered Plates etc. 16,550kgs 558,563
2 MS Flanges E-type 1579 182,047
3 MS Dummy/Blind Flanges E-type 85 12,926
4 MS Short Bends 626 35,325
5 MS Long Bends 40 1,575
6 MS Threaded Nipples 282 17,910
7 MS Ball Valve 172 135,450
8 Gun Metal Steam Valves 25 33,750
9 MS Ball Valve E-type 10 11,250
10 MS T 8 180
11 MS Reducer 49 6,818
12 MS GI Coated Nuts & Bolts 495kgs 21,718
13 GI U Clamps 10kgs 225
14 Spirax Steam Trap 3/4" 10 24,470
15 Gun Metal Steam Traps 3/4" 12 27,000
16 Anchor Bolts 170 1,530
17 MS Couplings 146 1,800
18 MS Foundation Bolts 16 1,040
19 PVC Foot Valve 3" 3 506
20 Packing Sheet Non Metallic 3mm thick 73.5kgs 5,374
21 CI Butterfly Valves 17 37,800
22 CI Y-Strainer E-type 9 16,875
23 Non Return Valves (Vertical type) 15 15,700
24 4'x6'x2.5mm thick MS Sheet 140kgs 3,938
25 SS 316 S40 Short Bends 249 111,787
26 SS 316 S40 Threaded Nipples 165 23,186
27 SS 304 Flanges E-type 934 174,994
28 SS 316 S40 T 52 7,054
29 SS 304 Ball Valves E-type 6 31,500
30 SS 304 Flush Bottom Valves 6 33,750
31 SS 316 S40 Reducer 141 63,562
32 SS 304 Couplings 10 562
33 SS 304 Ball Valves 157 248,200
34 SS 316 View Glass 22 34,200
35 SS 304 Dummy Flanges E-type 49 7,627
36 SS 316 Welding Rods ESAB 308 10 22,500
37 GI Flat 25x6mm 477.8kgs 14,675
38 Teflon Tape 100 3,150
39 MS welding rods 1 208
40 SANT C3 PRV Valve 40mm 1 14,625
41 SANT Bronze PRV S/E 1" 1 12,375
42 ESAB Tig Rod 16.30 SS316 35kgs 19,687
43 CI Ball Valves 3/4" 16 9,000
44 MS Dummy Plugs 3/8" 20 225
45 GI T 60 1,969
46 GI Long Bends 101 2,576
S. No. Description Nos. Price in Rs.
47 GI Union 35 2,137
48 GI Dummy Plugs 4 67
49 GI Threaded Nipple 155 6,806
50 Hold tite 500gms 113
51 GI Coupling 48 945
52 PDSPSA102A Float Trap 1" 4 27,000
53 PDSPSA204A Y-type S/E Strainer 4 11,250
54 14"x14" CI Man holes 10 7,875
55 GI U Clamps Lumpsum 563

Total Cost of Pipe Hangers, Fittings, Valves, Beams, Channels etc. 2,047,938
 c) Insulation - Piping, Equipment

S. No. Description Nos. Price in Rs.

1 Mineral Wool 40bags 36,000
2 GI Mesh 8 Rolls 4,500
3 GI Wire 15kgs 506
4 Sheet metal screws 10pkts 563
5 Bitumen 85/25 110kgs 24,750
6 GI Sheets 24gauge 109kgs 7,357
7 Aluminium Coil 24gx3' 772kgs 156,330
8 Thermocol Pipes 1500mts 135,000

Total cost of Insulation - 365,006

Total Cost of Piping including a, b, & c = 3,611,197

5) Electrical Equipment and Materials
a) Electrical equipment - switches, motors, conduit, wire, fitting etc., b) Electrical mater

S. No. Description Nos. Price in Rs. S. No.

1 Panel Boards 5 281,250 1
2 Electrical Access. In panel boards Lumpsum 112,500 2
3 Lighting, lamps, tubes & Gen. Fitting Lumpsum 168,750
4 FLP Light Fittings 10 56,250
5 FLP RV lamps on-off switch type 12 60,750
6 FLP Push button station on-off type 30 20,250
7 Armoured Cable 4275mts 1,715,625
8 FCG' well glass 2x25W FLP lights 2 225
9 FCG make bulk head fitting 2 2,250
10 120x3mm copper flat 14.2kgs 799
11 FLP Glands 200 3,937
12 320 wire (Fine cab) 15coils 8,438
13 Exhaust Fan (FLP) 3 15,750
14 Fresh Air Fan (NFLP) 3 4,500
15 Galvanized Perforated Cable Trays 125mts 45,000
16 Nut Bolt Washers 320sets 337
17 Zeuzer Pumps(2.0hp)(Double M.Seal 2 104,000 Total Cost for Elec
18 CG 5.0HP Monobloc pumpset 6 124,800
19 CG 7.5HP Monobloc pumpset 3 78,000
20 CG 3.0HP Monobloc pumpset 2 35,360 Total Cost for Elec
21 Twin screw pump 1.0HP (Tushaco) 1 89,278
22 Twin screw pump 1.5HP (Tushaco) 1 89,278
23 Kirloskar 3.0HP Monobloc pumpset 1 15,600 6) Buildings (Including
24 CG 7.5HP FLP Motor 1 27,480
25 CG 1.0HP FLP Motor 7 109,200 a) Process Buildin
26 CG 1.0HP NFLP Motor 4 54,080 Total Price incur
27 CG 2.0HP FLP Motor 2 41,600
28 Centrifugal process pumps 1.0HP 11 28,600 b) Auxiliary Buildin
29 Centrifugal process pumps 2.0HP 2 6,240 Total Price incur
30 High Vacuum Pump 5.0HP 1 20,800
c) Maintenance Sh
Total Price incur

d) Building Service
S.No.
1
2
3
4

Total Cost of Electrical Equipment = 3,320,927

Total cost for Bu

Total Cost for Buil

 7) Yard Improvements
) Electrical materials and labor Site Development -

Description Nos. Price in Rs. S. No.

Labor of Excavation Lumpsum 2,250 1
Labor for Electrical wiring Lumpsum 112,500 2
3
4

Total Cost for Electrical Materials and labor = 114,750 Total Cost for Yard

Total Cost for Electrical Equipment and Materials including a and b = 3,435,677 8) Service Facilitites
a & b) Utilities and F

Buildings (Including Services) S. No.

1
) Process Buildings 2
Total Price incurred in constructing Process Buildings = 4,000,000 3
4
) Auxiliary Buildings 5
Total Price incurred in Auxiliary buildings = 0 6
7
) Maintenance Shops 8
Total Price incurred in Maintenance Shops = 0 9
10
) Building Services 11
Description Nos. Price in Rs. 12
Plumbing work (labor charges) Lumpsum 15,000
Air Handling Units (HVAC) 2 337,500
Paint Material Lumpsum 10,912
Labor charges for painting Lumpsum 20,000

Total cost for Building services = 383,412

otal Cost for Buildings including a, b, c & d = 4,383,412

Total Cost of Utilities
7) Yard Improvements
Site Development - site clearing, grading, roads, walkways etc. c) Non Process Equipme

Description Nos. Price in Rs. S. No.

Site Clearing Lumpsum 10,000 1
Roads Lumpsum 30,000 2
Walkways Lumpsum 15,000 3
Landscaping Lumpsum 15,000 4
5
6
7
8
9
10

Total Cost for Yard Improvements = 70,000

8) Service Facilitites
a & b) Utilities and Facilities
Total Cost of Non Proces
Description Nos. Price in Rs.
Borewell and Pumpset Lumpsum 50,000 d) Distribution and Pack
POLYSTOL HDPE tanks 2 10,125 Already Included in I
Distribution Transformer 400KVA 1 302,550
24TR aircooled packaged chiller 1 489,375 Total Cost of Service Fa
SS water jet vacuum system 5 84,375
70KVA kirloskar make generator 1 168,750
ELGI air cooled Air Compressor 1 22,500 9) Land - Surveys and fees
1.0HP monobloc vacuum pumps 2 16,875
Heating bath and Accessories 1 33,750 The cost of Land is take
Cold rooms with panels 2 587,650
SS304 Pass box 2 45,000
Cooling Towers 2 78,750

Total Cost of Utilities and Facilities = 1,889,700

 c) Non Process Equipment Total Direct Costs (D)

Description Nos. Price in Rs. S. No.

FC 1800 FRP Fume Chamber and base 1 165,877 1
Pharma Room Doors (Steel Doors) 2 47,250 2
Doors and Windows Lumpsum 50,000 3
Granite 3000sft 151,875 4
Labor charges for laying granite 3000sft 54,000 5
Glazed Tiles 2000sft 45,000 6
Labor charges for laying tiles 2000sft 16,000 7
Fire Extinguishers 3 33,750 8
Miscellaneous Laboratory Equipment Lumpsum 225,000 9
Office furniture and equipment Lumpsum 33,750
Total Direct Costs (D)

Total Cost of Non Process Equipment = 822,502

d) Distribution and Packaging

Already Included in Item No. 1 and 6 = 0

Total Cost of Service Facilities including a, b, c & d = 2,712,202

) Land - Surveys and fees, Property cost

The cost of Land is taken as 4% of the Total Purchased Equipment cost = 247861.24
 Indirect Costs
al Direct Costs (D)
1) Engineering and Supervis
Description Grand Total in Rs.
Purchased Equipment 6,196,531 Total Engineering and Su
Purchased Equipment Installation 1549132.75
Instrumentation and Controls 190,590 2) Construction Expenses
Piping 3,611,197
Electrical Equipment and Materials 3,435,677 Total Construction Expen
Buildings (Including services) 4,383,412
Yard Improvements 70,000 3) Contractor's Fee
Service Facilities 2,712,202
Land 247861.24 Total Contractor's fee is ta

otal Direct Costs (D) = 22,396,603 4) Contingency

Total Contingency cost is

Total Indirect Costs (I)

S.No.
1
2
3
4

Total Indirect Costs (I)

Fixed Capital Investment

Working Capital (WC), 15%

Total Capital Investment (

direct Costs

) Engineering and Supervision

Total Engineering and Supervision cost is taken as 8% of the Total Direct Cost = 1791728.24

) Construction Expenses

Total Construction Expenses cost is taken as 7% of the Total Direct Cost = 1567762.21

) Contractor's Fee

Total Contractor's fee is taken as 5% of the Total Direct Cost = 1119830.15

) Contingency

Total Contingency cost is taken as 8% of the Total Direct and Indirect cost = 2337036.83

otal Indirect Costs (I)

Description Grand Total in Rs.

Engineering and Supervision 1791728.24
Construction Expenses 1567762.21
Contractor's Fee 1119830.15
Contingency 2337036.83

Total Indirect Costs (I) = 6816357.43

Fixed Capital Investment (FCI), D + I = 29,212,960

Working Capital (WC), 15% of TCI = 5155228.31

Total Capital Investment (TCI) = 34368188.73

Spreadsheet for Estimation of Total Capital Investment

S. No. Description Cost in Rs. Cost in Rs. Cost in Rs.

Direct Costs
1 Purchased Equipment 6,196,531
2 Purchased Equipment Installation 1549132.75
3 Instrumentation and Controls 190,590
4 Piping 3,611,197
5 Electrical Equipment and Materials 3,435,677
6 Buildings (Including services) 4,383,412
7 Yard Improvements 70,000
8 Service Facilities 2,712,202
9 Land 247861.24
Total Direct Costs (D) 22,396,603
Indirect Costs
10 Engineering and Supervision 1791728.24
11 Construction Expenses 1567762.21
12 Contractors Fee 1119830.15
13 Contingency 2337036.83
Total Indirect Costs (I) 6816357.43
Fixed Capital Investment (FCI), D + I 29,212,960
Working Capital (WC), 15% of TCI 5155228.31
Total Capital Investment (TCI) 34368188.73
Spreadsheet for Estimation of Total Product Cost

S. No. Description Cost in Rs. Cost in Rs. Cost in Rs.

Manufacturing Costs
Direct Production Costs
1 Raw Materials 11250000
2 Operating Labor 1404000
3 Operating Supervision 1164000
4 Power and Utilities 3156000
5 Maintenance and Repairs 185895.93
6 Operating Supplies 27884.39
7 Laboratory Charges 280800
8 Patents & Royalties 0
9 Catalysts and Solvents 5471250
Total Direct Production Costs 22939830.32
Fixed Charges
10 Depreciation 4513446.42
11 Taxes 292129.6
12 Insurance 292129.6
13 Rent 0
Total Fixed Charges 5097705.63
Plant Overhead Costs
14 Plant Overhead Costs 826168.78
Total Plant Overhead Costs 826168.78
Total Manufacturing Costs (M) 28863704.73
General Expenses
15 Administrative Expenses 351000
16 Distribution & Marketing Expenses 3246078.3
17 Research & Development 0
18 Financing (Interest) 0
Total General Expenses (G) 3597078.3
Total Product Cost, M + G 32460783.03
TOTAL PRODUCT COST

Determination of the necessary Capital Investment is only one part of a complete cost estimate. Another
equally important part is the estimation of costs for operating the plant and selling the products. These costs
can be grouped under the general heading of Total Product Cost

The Total Product Cost is calculated for the known production process, which can be produced in the above
installed plant. This production process is basically related to the product of Active Pharmaceutical Ingredient
(API) produced from the naturally occuring plants. The basic Raw Material for the process is Duboisia Leaves.

Basis
1) The Total Product Cost is calculated based on the Annual Cost Basis
2) Number of days working per year is taken as 300 days
3) Plant is running in 3-shifts I.e. 24hrs per day
4) Capacity of the plant per year of the API, in Kg = 2,400

Manufacturing Costs

1) Direct Production Costs

a) Raw Materials

S. No. Description Quantity per annum, Kg Cost per unit in Rs. Total Annual cost in Rs.
1 Duboisia Leaves 90,000 125 11250000
0
0
0
0
0
0
0

Total Cost of Raw Materials = 11250000

b) Operating Labor

S. No. Description No, Required Monthly Salary in Rs. Total Annual Salary in Rs.
1 Skilled Labor 30 3000 1080000
2 Unskilled Labor 10 1500 180000
3 Watch men 6 2000 144000
0
0
0
0
0

Total Cost of Operating Labor = 1404000

 c) Operating Supervision

S. No. Description No, Required Monthly Salary in Rs. Total Annual Salary in Rs.
1 In-charge 3 12000 432000
2 Supervisor - Plant 6 7500 540000
3 Supervisor - Stores 1 6500 78000
4 Supervisor - Maint. 1 9500 114000
0
0
0
0
0
0
0
0
0
0

Total Cost of Operating Supervision = 1164000

d) Power and Utilities

S. No. Description No. of Units/year Cost / unit (in Rs.) Total Annual Cost in Rs.
1 Steam 2,15,205Kg 6.97 1500000
2 Electricity 3,60,000KWH 4 1440000
3 Water 4,320m3 50 216000

Total Annual Cost of Power and Utilities = 3156000

e) Maintenance and Repairs (MR)

Annual cost of maintenance and Repairs is aausmed as

3% of the Total Equipment Cost = 185895.93

f) Operating Supplies

Annual cost of operating supplies is assumed as 15% of

the Total cost of Maintenance and Repairs = 27884.39
 g) Laboratory Charges

Annual cost of laboratory charges is assumed as 20% of

the Total cost of Operating Labor = 280800

h) Patents and Royalties

Annual cost of patents and royalties = 0

I) Catalysts and Solvents

S. No. Description Quantity per Annum Cost per Unit Total Annual Cost in Rs.
1 Methanol, Lts 466,000 8 3728000
2 D.M.Water, Lts 120,000 1 120000
3 Hydrochloric Acid, Lts 1,500 4.5 6750
4 Chloroform, Lts 78,000 15 1170000
5 Ammonia, Lts 4,000 7 28000
6 n-Butylbromide, Lts 7,500 25 187500
7 Acetonitrile, Lts 7,500 18 135000
8 Activated Charcoal, Kgs 300 60 18000
9 Hyflow, Kgs 6,500 12 78000
0
0
0
0
0
0
0
0

Total Annual Cost of Catalysts and Solvents = 5471250

Total Annual Direct Production Cost

S. No. Description Total Annual Cost in Rs.

1 Raw Materials 11250000
2 Operating Labor 1404000
3 Operating Supervision 1164000
4 Power and Utilities 3156000
5 Maintenance and Repairs 185895.93
6 Operating Supplies 27884.39
7 Laboratory Charges 280800
8 Patents & Royalties 0
9 Catalysts and Solvents 5471250

Total Direct Production Cost = 22939830.32

2) Fixed Charges
a) Depreciation

i) Annual cost of Depreciation for Machinery and Equipment is

assumed as 10% of the Fixed Capital Investment = ###

ii) Annual cost of Depreciation for buildings is taken as

3% of the Initial Cost of buildings = ###

iii) Annual cost of Depreciation for Instrumentation & Controls, piping,

Electrical equipment and Materials is assumed as 5% of FCI = ###

b) Taxes

Annual property taxes for plant is assumed as 1% of the

Fixed Capital Investment = 292129.6

c) Insurance

Annual cost of Insurance is assumed as 1% of the

Fixed Capital Investment = 292129.6

d) Rent

Annual cost of Rent for Land and Buildings = 0

Total Annual Fixed Charges

S. No. Description Total Annual cost in Rs.

1 Depreciation 4513446.42
2 Taxes 292129.6
3 Insurance 292129.6
4 Rent 0

Total Fixed Charges = 5097705.63

3) Plant Overhead Costs

Annual Plant Overhead Costs is assumed as 30% of the total

cost of operating labor, supervision and maintenance = ###

Total Manufacturing Costs (M)

S. No. Description Total Annual cost in Rs.

1 Direct Production Cost 22939830.32
2 Fixed Charges 5097705.63
3 Plant Overhead Costs 826168.78

Total Manufacturing Costs = 28863704.73

General Expenses

1) Administrative Expenses

Annual cost of Administrative expenses is assumed as 25% of

the total cost of operating labor = 351000

2) Distribution and Marketing Expenses

Annual cost of Distribution & Marketing expenses is assumed

as 10% of the Total Product Cost = 3246078.3

3) Research and Development

Annual cost of Research and Development = 0

4) Financing (interest)

Annual cost of Financing (interest) = 0

Total General Expenses (G)

S. No. Description Total Annual cost in Rs.

1 Administrative Expenses 351000
2 Distribution and Marketing Expenses 3246078.3
3 Research and Development 0
4 Financing (interest) 0

Total Cost of General Expenses = 3597078.3

Total Product Cost (TPC), M + G = 32460783.03

Profitability Analysis

To Calculate Profitability Analysis two methods have been employed.

Method 1 : Based on Fixed Known Selling Price of the Finished Product API at 75% Capacity

Method 2 : Based on Selling Price of the Finished Product API calculated at 100%, 75% & 50% Capacity.

Method - 1

Revenue Through sales

At present the market value of the Finished Product API manufactured under this
facility per Kg = 50,000

Annual Revenue through sales at 75% capacity = 90000000

Gross Profit = Annual Revenue through sales - Annual Operating Cost

Gross Profit = 57539216.97

Net Profit = Gross Profit x (1 - tax%)

Assuming tax percent = 20

Net Profit = 46031373.57

Pay Back Period

Pay Back Period = Total Investment / ( Net Profit + Depreciation )

where Total Investment = Fixed Capital Investment

Pay Back Period = 0.58 years

Rate of Return

Rate of Return = ( Net Profit / Total Investment ) x 100

Rate of Return = ### %

Method - 2

Product Unit Cost

The Total Product Cost estimated in the facility is, Rs. = 32460783.03 per year
This amount should be compensated by the annual sales of the Product

The Unit Cost per Kg of the Finished Product API = 13525.33 per Kg

Pay Back Period

In order for the Total Investment to have low level of risk,

the minimum acceptable return should be = 16 %

Pay Back Period = Depreciable Fixed Capital Investment / ((Average profit/yr) + (Average Depreciation/yr))

Depreciable Fixed Capital Investment = Sum of Sl.Nos. 1,3,4,5 & 6 of Spread Sheet No.1

= 17,817,407

Average Profit / Year = Minimum Acceptable return x Fixed Capital Investment

= 4674073.67

Average Depreciation / Year = FCI / Number of years (N)

where Number of years = 10

= 2921296.04

Pay Back Period = 2.35 years

Selling Price for Different Plant Capacities

To estimate Selling Price (Rs/Kg) of the Finished Product API, average net profit is to be determined.
A calculation table is prepared to perform this at 100%, 75% & 50% capacity.

Assumptions

Evaluation time (N) is taken as 10 years

Salvage Values (Vs) are assumed as 0
Capacity for the First and Second year is taken as 50% and 75% respectively.

Contd……
 Profitability Analysis Contd….

Table 1 : Calculation Table for 100% Capacity

1 2 3 4 5 6 7 8 9 10 Sum
A. Capacity of the Plant % 50 75 100 100 100 100 100 100 100 100

B. Product Rate, tons/year 1.2 1.8 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 22.2

C. All Variable Costs, (10) 6 Rs/year 16.23 24.35 32.46 32.46 32.46 32.46 32.46 32.46 32.46 32.46 300.26

D. All Fixed Costs, (except

Depreciation), (10)6 Rs/year (*) 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 50.08

E. Depreciation, (10) 6 Rs/year 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 29.21

F. Total Product Cost (C+D+E) 24.16 32.27 40.39 40.39 40.39 40.39 40.39 40.39 40.39 40.39 379.55
(10)6 Rs/year
(*) indicates, consider sum of costs from Sl.No. 11 to 18 of spreadsheet No.2

All Variable Costs = Product Rate x Unit Cost of Finished Product API per Kg

Depreciation is calculated as Straight Line Method as follows :

d = (V - Vs) / N

Where, d annual depreciation, Rs/year

V = Original value of the property at start of the service life period, completely installed and
ready for use, Rs or FCI
Vs = Salvage value of property at the end of service life, Rs
N = Service life, years
Table 2 : Calculation Table for 75% Capacity

1 2 3 4 5 6 7 8 9 10 Sum
A. Capacity of the Plant % 75 75 75 75 75 75 75 75 75 75

B. Product Rate, tons/year 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 18

C. All Variable Costs, (10) 6 Rs/year 24.35 24.35 24.35 24.35 24.35 24.35 24.35 24.35 24.35 24.35 243.46

D. All Fixed Costs, (except

Depreciation), (10)6 Rs/year (*) 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 50.08

E. Depreciation, (10) 6 Rs/year 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 29.21

F. Total Product Cost (C+D+E) 32.27 32.27 32.27 32.27 32.27 32.27 32.27 32.27 32.27 32.27 322.74
(10)6 Rs/year
(*) indicates, consider sum of costs from Sl.No. 11 to 18 of spreadsheet No.2

All Variable Costs = Product Rate x Unit Cost of Finished Product API per Kg

Depreciation is calculated as Straight Line Method as follows :

d = (V - Vs) / N

Where, d annual depreciation, Rs/year

V = Original value of the property at start of the service life period, completely installed and
ready for use, Rs or FCI
Vs = Salvage value of property at the end of service life, Rs
N = Service life, years
Table 3 : Calculation Table for 50% Capacity

1 2 3 4 5 6 7 8 9 10 Sum
A. Capacity of the Plant % 50 50 50 50 50 50 50 50 50 50

B. Product Rate, tons/year 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 12

C. All Variable Costs, (10) 6 Rs/year 16.23 16.23 16.23 16.23 16.23 16.23 16.23 16.23 16.23 16.23 162.3

D. All Fixed Costs, (except

Depreciation), (10)6 Rs/year (*) 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 5.01 50.08

E. Depreciation, (10) 6 Rs/year 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 2.92 29.21

F. Total Product Cost (C+D+E) 24.16 24.16 24.16 24.16 24.16 24.16 24.16 24.16 24.16 24.16 241.59
(10)6 Rs/year
(*) indicates, consider sum of costs from Sl.No. 11 to 18 of spreadsheet No.2

All Variable Costs = Product Rate x Unit Cost of Finished Product API per Kg

Depreciation is calculated as Straight Line Method as follows :

d = (V - Vs) / N

Where, d annual depreciation, Rs/year

V = Original value of the property at start of the service life period, completely installed and
ready for use, Rs or FCI
Vs = Salvage value of property at the end of service life, Rs
N = Service life, years
Average Net Profit (Np,ave) is calculated as

Np, ave = (1/N) x [p x Sum (B) - Sum (F)] (1 - tax%)

Where, p is the unit selling price

N is the evaluation period
tax % is taken as 20%

Pay Back Period = Fixed Capital Investment / (Average Net Profit + Average Depreciation)

Where, Pay Back Period = 2.35 years

Average Depreciation = FCI / 10 = ###

The Unit Selling Price of the Finished Product API at 100% capactiy is = 22463.91

Therefore, Average Net Profit per year = 9531876

Average Net Profit (Np,ave) is calculated as

Np, ave = (1/N) x [p x Sum (B) - Sum (F)] (1 - tax%)

Where, p is the unit selling price

N is the evaluation period
tax % is taken as 20%

Pay Back Period = Fixed Capital Investment / (Average Net Profit + Average Depreciation)

Where, Pay Back Period = 2.35 years

Average Depreciation = FCI / 10 = ###

The Unit Selling Price of the Finished Product API at 100% capactiy is = 24549.57

Therefore, Average Net Profit per year = 9531876

 Average Net Profit (Np,ave) is calculated as

Np, ave = (1/N) x [p x Sum (B) - Sum (F)] (1 - tax%)

Where, p is the unit selling price

N is the evaluation period
tax % is taken as 20%

Pay Back Period = Fixed Capital Investment / (Average Net Profit + Average Depreciation)

Where, Pay Back Period = 2.35 years

Average Depreciation = FCI / 10 = ###

The Unit Selling Price of the Finished Product API at 100% capactiy is = 30061.7

Therefore, Average Net Profit per year = 9531876

Table - 4 : Minimum Selling Price for different Plant Capacities

Plant Capacity % Minimum Selling Price (Rs/Kg)

100 22463.91

75 24549.57

50 30061.7
References :

1) Plant Design and Economics for Chemical Engineers, 5/e by Max S. Peters, University of
Colorado, Klaus Timmerhaus, University of Colorado, Boulder, Ronald E. West, University
of Colorado, Boulder.

2) Data Available from my Professional Experience in a Bulk Drug Pharmaceutical Industry

3) Chemical Engineering Resources, website, http://www.cheresources.com

4) Profitability Analysis, websit, http://odellion.com

Note :

1 USD = Rs.45.00 (Approx)