Annual Sales Revenues, Production Costs, and the Cost Sheet

Annual Sales Revenues, Production Costs, and the Cost Sheet 565... 

ANNUAL SALES REVENUES, PRODUCTION COSTS, AND THE COST SHEET... 

Having completed an estimate for the total permanent investment, Cjpi, in Table 16.9, of a proposed plant, it remains to estimate the total annual sales revenue, S, the total annual production cost, C, and the annual pre-tax and after-tax earnings. This includes the development of the so-called Cost Sheet. Then the working capital can be estimated and added to the total permanent investment to give the total capital investment for the plant, as shown in Table 16.9. These provide the ingredients for an approximate measure of economic goodness, called the return on investment, defined by... 

The project team must detail all past costs that the project has incurred since its inception (start of EvP) on an annual basis. In addition, an annual project financial information table (ProFIT) data sheet should be presented. This sheet contains the revenue and cost forecasts for the upcoming ten-year period. It computes net present value (NPV) of future cash flows and return on capital employed (ROCE) automatically. At this stage, the team is expected to include detailed production costs data as well as estimates of plant costs (based on an engineering estimate, for example). The ten-year projection should be provided for three scenarios base, optimistic, and pessimistic. These cases are not meant to be simple percentage changes of the sales projections. Instead, the team should try to identify the drivers of the project s success and construct alternatives for the future that lead to different results for the project. The base case should be the most likely case. The optimistic scenario should be based on the positive development of some (not all) key success factors. The pessimistic scenario is usually the minimum feasible case, meaning a situation where the organization would still prusue the project, but some factors do not develop in a positive way. 

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