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OPERATING COST ESTIMATE FACTORS PowerPoint Presentation
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OPERATING COST ESTIMATE FACTORS

OPERATING COST ESTIMATE FACTORS

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OPERATING COST ESTIMATE FACTORS

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  1. OPERATING COST ESTIMATE FACTORS BUDGETS

  2. 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

  3. 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

  4. COST CATEGORIES • FIXED COSTS REQUIRE NO DRIVING AT ALL • INSURANCE • LICENSE • VARIABLE COSTS ARE BASED ON MILEAGE • GAS • OIL http://www.allaccess-insurance.com/Insurance_California_autos_cars_motorcycles.jpg http://skeptically.org/sitebuildercontent/sitebuilderpictures/.pond/suv-econ-gas-pump.jpg.w300h294.jpg

  5. 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/imagecenter/images/street_tiremount.jpg

  6. 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.

  7. 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

  8. BUDGET SHEETS FOR PROJECTS

  9. BUDGET SHEETS FOR PROJECTS

  10. 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)

  11. 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

  12. 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

  13. 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.power-technology.com/projects/avedore/images/avedore5.jpg

  14. REGULATED COSTS http://www.arvon.com/foreman.JPG • SUPERVISION • FOREMAN • ONE TO THREE, DEPENDING ON COMPLEXITY OF PROCESS • SALARY = $60K/YR • OVERHEAD = 35% • SUPERVISOR • 1 PER PLANT • ASSUME ANNUAL SALARY = $65K/YR • OVERHEAD = 35% http://www.time-scan.com/jansen-images/home_B2-foreman.jpg

  15. 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/general/global_signaling/services/images/maintenance.jpg

  16. 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%

  17. 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%

  18. 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.rad-ra.com/images/robotic_accessories_maintenance_service_spare_parts_warehouse.jpg

  19. 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/Research-Lab.jpg

  20. 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

  21. TYPICAL BREAK-EVEN ANALYSIS GRAPH

  22. 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/img/barrons/accounting/images/1-A2.jpg

  23. EXAMPLE FOR ADIPIC ACID • From Tony Pavone • Comparison of two cases