Costs, administration distribution

Fixed costs are those elements of piece cost that are a function of the annual production volume. Fixed costs are called fixed because they typically represent one-time capital investments (buildings, silos, processing machines, etc.) or annual expenses unaffected by the number of products produced (building rent, engineering support, administrative personnel, etc.). Typically, these costs are distributed over the total number of products produced in a given period. For plastics processes the principal elements are main machine cost, auxiliary equipment cost, tooling cost, building cost, overhead labor cost, maintenance cost, and the cost of capital. 

Sales are based on low price. All possible ways of acbieving cost advantages must therefore be utilized low production costs, bigh numbers of units, cost-effective distribution, low staff and administration costs, bigb cost awareness. 

Centralization There wiU be fewer large centralized warehouses in the future to replace the more numerous, smaUer, decentralized warehouses of the past. There will be fewer managers and administrative people involved with distribution as integrated distribution is pursued and distribution staffs are centralized. Along with the centralization of warehouses and staffs wUl come the centralization of order entry, customer service, and data processing. The increased responsiveness of transportation at lower costs, the focus on the total cost of distribution, the reahties of customer satisfaction, pace, variety, and adaptability—aU are pointed toward the centralization theme. The trend toward centralized distribution wUl result in higher inventory turnover, which wUl in turn lead to new opportunities for automation and sophisticated information systems. 

Most people agree that general expenses incurred in administration, selling, distribution, etc., should not be included in the cost of inventory. In fact, many feel that no costs should be absorbed before they have been incurred. In general, method 2 is favored by engineers and method 3 by most accountants. However, the accountancy convention is to value at either cost or market value, whichever is the lower. In the methods considered, either ac tual or standard costs can be used. Note that method 3 shows a higher profit than method 2 when sales volume exceeds the produc tion rate and a lower profit when the production rate exceeds sales volume. 

SAQ 8.7 The product value at 100% capadty will now be (total cost of production + 7 to 15% ROD, ie 16.04 to 1654 + 1.12 to 2.48. So the minimum product value will be 17.16 per kg of L-phenylalanine and the maximum product value 19.02 per kg of L-phenylalanine. It is rattier difficult to say whether this fictitious process would survive or could compete. Actual data are absolutely necessary. On the other hand this exercise gives us a better understanding of process economics and can also be used to compare a fermentative process for the production of amino adds with, for example, a chemo-enzymatic process. Calculate the return on investment over a 15 year period for an amino add fermentation, based on the following data and assumptions. Production capadty = 500 tonnes per annum Selling price of product = 50 kg Cost price of product = 24.5 kg 1 Capital = 40 million Taxes = 50%. Assumptions Cost of dealer discount, distribution and freight = 20% total sales Startup costs = 10% of capital Working capital = 25% of net sales Administration plus R and D costs = 12.5% of net sales. 

The price of each product is calculated by means of the analytical application of the overall cost including the totality of expenditure on R D, and incorporating the distribution of commercial and administrative expenses (cost control). 

The total manufacturing cost includes administration, research and development, distribution, and selling. Here RM represents the costs of the raw materials FCI is the fixed capital investment OL is the cost of operating labor E is energy costs Z is the step or overall yield and a, /3, y, and 8 are coefficients that must be determined for a specific situation. 

The chemical engineer (or cost engineer) must be certain to consider all possible factors when making a cost analysis. Fixed costs, direct production costs for raw materials, labor, maintenance, power, and utilities must all be included along with costs for plant and administrative overhead, distribution of the final products, and other miscellaneous items. 

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. Capital must be allocated for direct plant expenses, such as those for raw materials, labor, and equipment. Besides direct expenses, many other indirect expenses are incurred, and these must be included if a complete analysis of the total cost is to be obtained. Some examples of these indirect expenses are administrative salaries, product-distribution costs, and costs for interplant communications. 

In addition to the manufacturing costs, other general expenses are involved in any company s operations. These general expenses may be classified as (1) administrative expenses, (2) distribution and marketing expenses, (3) research and development expenses, (4) financing expenses, and (5) gross-earnings expenses. 

II. General expenses = administrative costs + distribution and selling costs + research and development costs... 

Annual direct production costs for this process (with the exception of raw material and steam costs) plus costs for plant overhead, administration, office help, distribution, and contingencies are 480,000 per year. This 480,000 includes the cost of operating any vacuum equipment and is unchanged even if vacuum is not used in the process. 

The benefits of consolidation can include superior capacity utilization, the sharing of best practice process improvements, the elimination of overlaps in the distribution system, and the use of geographically closer plants for sourcing. Research and development and sales and marketing expenses can also be cut back by eliminating duplications in operations. Some non-traditional players (e.g., financial investors) have been able to slash their sales, general and administration costs by as much as 40 percent on the back of consolidation moves. 

Cost of dealer discount, distribution and frei t = 20% total sales Startup costs = 10% of capital Working capital = 25% of net salra Administration plus R and D costs = 12.5% dt net sales. 

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