Kuliah Ekonomi Teknik

JTK FT UGM 2011

Total product cost
 Total product cost: costs for operating
the plant and selling the products.
 Total product cost =
+ Manufacturing cost
+ General expenses
 Direct production

Manufacturing Fixed charges

cost
Plant overhead

Total product Administrative

cost
Distribution and
marketing
General Research and
expenses development

Financing

Gross-earning
Direct production cost
 Raw materials  Power and utilities
 Operating labor  Maintenance and
 Operating supervision repairs
 Steam  Operating supplies
 Electricity  Laboratory charges
 Fuel  Royalties (if not on
 Refrigeration lump-sum basis )
 Water  Catalysts and solvents
Fixed charges
 Depreciation
 Taxes (property)
 Insurance
 Rent
Plant overhead costs
 Medical  Recreation
 Safety and  Salvage
protection  Control laboratories
 General plant  Plant
overhead superintendence
 Payroll overhead  Storage facilities
 Packaging
 Restaurant
Administrative expenses
 Executive salaries
 Clerical wages
 Engineering and legal costs
 Office maintenance
 Communications
Distribution and marketing
expenses
 Sales offices
 Salesmen expenses
 Shipping
 Advertising
 Technical sales service
Research and development
expenses
 Research and development expenses are
incurred by any progressive concern which
wishes to remain in a competitive industrial
position.
 These costs are for salaries, wages,
special equipment, research facilities, and
consultant fees related to developing new
ideas or improved processes
Financing expenses
 Financing expense is usually limited to
interest on borrowed money, and this
expense is sometimes listed as a fixed
charge.
 Interest is considered to be the
compensation paid for the use of borrowed
capital. Annual interest rates amount to 5 to
10 percent of the total value of the
borrowed capital.
Gross-earnings expenses
 The total income minus the total production
cost gives the gross earnings made by the
particular production operation, which can
then be treated mathematically by any of
several methods to measure the profitably
of the proposed venture or project.
 Because of income-tax demands, the final
netprofit is often much less than the gross
earnings. Income-tax rates are based on
the gross earnings received from all the
company interests.
Estimation of total product cost
(showing individual components)
 The percentages indicated in the following
summary of the various costs involved in
the complete operation of manufacturing
plants are approximations applicable to
ordinary chemical processing plants.
 It should be realized that the values given
can vary depending on many factors, such
as plant location, type of process, and
company policies. Percentages are
expressed on an annual basis.
Estimation of total product cost
I. Manufacturing cost = direct production costs + fixed
charges + plant overhead costs

A. Direct production costs (about 60% of total product cost)

1 . Raw materials (10-50% of total product cost)
2 . Operating labor (10-20% of total product cost)
3 . Direct supervisory and clerical labor (10-25% of operating
labor)
4 . Utilities (10-20% of total product cost)
5 . Maintenance and repairs (2-10% of fixed-capital
investment)
6 . Operating supplies (10-20% of cost for maintenance and
repairs, or 0.5-1% of fixed capital investment)
7 . Laboratory charges (10-20% of operating labor)
8. Patents and royalties (0-6% of total product cost)
Estimation of total product cost
B. Fixed charges (10-20% of total product cost)
1 . Depreciation (depends on life period, salvage value, and
method of calculation-about 10% of fixed-capital investment
for machinery and equipment and 2-3% of building value for
buildings)
2 . Local taxes (1-4% of fixed-capital investment)
3. Insurance (0.4-1% of furedcapital investment)
4 . Rent (8-12% of value of rented land and buildings)
Estimation of total product cost
C . Plant-overhead costs (50-70% of cost for operating labor,
supervision, and maintenance, or 5-15% of total product
cost); includes costs for the following: general plant upkeep
and overhead, payroll overhead, packaging, medical
services, safety and protection, restaurants, recreation,
salvage, laboratories, and storage facilities.
Estimation of total product cost
II. General expenses = administrative costs + distribution
and selling costs + research and development costs +
financing
A. Administrative costs (about 15% of costs for operating labor,
supervision, and maintenance, or 2-6% of total product cost);
includes costs for executive salaries, clerical wages, legal
fees, office supplies, and communications
B. Distribution and selling costs (2-20% of total product cost);
includes costs for sales offices, salesmen, shipping, and
advertising
C . Research and development costs (2-5% of every sales dollar
or about 5% of total product cost)
D. Financing (interest) (0-10% of total capital investment)
Estimation of total product cost
III. Total product cost = manufacturing cost + general
expenses
If desired, a contingency factor can be included by
increasing the total product cost by l-5%.

IV. Gross earnings cost (gross earnings = total income - total

product cost; amount of gross earnings cost depends on
amount of gross earnings for entire company and income-tax
regulations; a general range for gross-earnings cost is 30-
40% of gross earnings)
Profit estimate
Sales Rp
………………………………….
Manufacturing cost …… Rp
General expense ……….. Rp
-----------------------
Total cost Rp
……………………………
-----------------------
Profit before taxes …………….. Rp
Income taxes Rp
……………………..
-------------------
Profit after taxes ……………….. Rp
Sales
Determining sales price:
 If the product is already being
manufactured by competitors: the price set
at or below competitive values
 If the product is new but its utilization lies in
fields being supplied by established
materials: the price determined by
competitive products performance
 Other than those two situations: the price =
total cost + desired profit
The effect of variable condition
upon costs and profits
Type of costs:
 Fixed costs (constant at all production
levels)
 Depreciation, taxes, insurance
 Variable costs ( directly proportional to
production level)
 Raw materials, packaging containers, utilities,
shipping, royalties
 Regulated costs ( somewhat proportional
to production level)
 Labor, overhead, supervision, laboratory,
general expenses, maintenance, plants supplies
 Break-even chart

Total cost

Sales
Rp/year

Ra
Garis sejajar sales
Sa

0.3Ra Va
Variable expenses

Fixed expenses Fa
Shutdown Break-even
Capacity, %
Point (SDP) Point (BEP)
References
1. Peters, M.S., Timmerhaus, K.D., Plant Design
and Economics for Chemical Engineers, 4th ed.,
McGraw Hill, New York, 1991
2. Aries,R.S., Newton,R.D., Chemical Engineering
Cost Estimation, McGraw Hill, New York, 1955
3. Silla, H., Chemical Process Engineering:
Design and Economics, MARCEL DEKKER,
INC, New York, 2003