Costs, administration labor, direct

Cost accounting is the name traditionally given to accounting for manufacturing costs. The manufacturing cost of a product is traditionally taken as the sum of the costs for (1) direct materials, (2) direct labor, (3) manufacturing overheads, and (4) administration, selhng, and finance. 

Labor Expenses. In the majority of situations, projects will cause a company s labor requirements to change. This change could be a positive effect that increases available productive time, or there could be a decrease in employees production time depending upon the practice. When computing labor expenses, the Tier 1 costs could be significant. Labor expense calculations can be simplistic or comprehensive. The most direct and basic approach is to multiply the wage rate by the hours of labor. More comprehensive calculations include the associated costs of payroll taxes, administration, and benefits. Many companies routinely track these costs and establish an internal burdened labor rate to use in financial analysis. 

The cost of manufacturing a product includes the manufacturing cost, overhead, and general expenses. Manufacturing cost includes direct expenses and consists of the cost of raw material, containers, operator and labor costs, and utilities (like electricity, steam, water, fuel, etc.). This cost will depend on the production quantity. In contrast, overhead cost will be constant irrespective of the quantity of material that is being manufactured. Overhead cost may include expenses such as employee salaries, medical services, administration, insurance, depreciation, taxes, etc. General expenses consist of freight and delivery, sales, and R D expenses. 

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. 

A 70,000 ton/year, 22,000,000 plant was started up in 2001. Since then, it has been operating at capacity for an average of 7200 h/year. It is staffed by 25 full-time production workers ( 32/h), two maintenance workers ( 35/h), and four shift supervisors ( 39/h). All labor rates include payroll and plant overhead. The process consumes 530 kilowatts of electricity ( 0.045/kWh), 50,000 gal/h of water ( 0.15/thousand gal), and 8.75 tons/h of feedstock ( 0.78/lb). Maintenance materials are estimated as equivalent to maintenance labor. Royalties amount to 4.20 per ton of product. The property taxes, insurance, and administrative charges total 5.2% of the total capital investment. Find the direct and indirect annual costs for the plant. 

Such a value is constituted for about two thirds (almost 4,000 EUR/ha, 0.17 EUR/Kg) of direct costs raw materials (8.3%), labor (11.6%), insurance premium (5.9%), and capital consumption costs (9.0%). The remaining 1,734 EUR/ha are indirect costs (land maintenance and insurance charges, general and administration costs, welfare contributions, taxes, financial charges and rents, etc.). 

Shop Overhead. In addithm to the direct costs involved for materials and labor, idl fabricators must add an indinvt cost often termed the shop overhead or burden. This overhead includes a variety of items, such as the cost of supervision, administration, engineering, sales, utilities, maintenance, depreciation, taxes, and other fixed and indirect costs. These cc ts vary from shop to shop, area to area, and year to year, and are estahlMted hy the ctmrfitions for a particular shop and hy Ifie acA ouiiting pnictice followed. I his overhead usually rang ftxmi 100% to 200% of the total cowit for labor and materials. 

Factory direct labor Factory indirect labor Clerical/administrative/sales Technical / professional Fixed costs Purchased item costs Services... 

This method of accoimting contributes to the fact that many companies have tended to concentrate cost-reduction efforts on direct labor. Accoimting procedures lead them to believe "that s where the money is." The result is cost-cutting departments like industrial engineering troll for savings on the shop floor with little corresponding effort in capital asset utilization, support, administrative, and technical functions. This is one example that shows why... 

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