Depreciation of equipment

The key elements of the cost of production of phenol are feedstock cost and capital cost. For phenol produced on the U.S. Gulf Coast in a 200,000 t/yr phenol plant built in 1994, the cumene feedstock cost represents 70% of the net cost of production, after allowance for acetone coproduct value. Depreciation of equipment represents 14% of the net cost and utilities approximately 7.6%. The remaining 8.4% covers all other expenses, including plant labor, maintenance, insurance, adininistration, sales, etc. 

Corrosion, the degradation of a material s properties or mass over time because of environmental effects, is a costly reality that effects every industry. A study issued by the Federal Highway Administration (FHWA) in 2002 conservatively estimates the annual direct cost of corrosion in all U.S. industry sectors at US 276 billion. Costs associated with corrosion include cathodic/anodic protection coatings inhibitors corrosion-resistant alloys and materials and maintenance, repair, and depreciation of equipment. Indirect costs, such as lost productivity, environmental or product contamination, planning and design, and lost opportunities, can easily outpace direct costs by factors of two or more. 

Performance of NEOSEPTA-F in Sodium Chloride Solution Electrolysis. Figure 5 shows the relationship of the cell voltage and the current efficiency respectively with the concentration of sodium hydroxide in catholyte when electrolysis of sodium chloride solution was carried out at the current density of 30 A/cm. From the economical viewpoint, i.e, the electrolysis power cost, depreciation of equipment cost, membrane cost and so on, the optimum concentration of sodium hydroxide for NEOSEPTA-F C-1000 is about 20 % and that for NEOSEPTA-F C-2000 is about 27 %. 

The analysis presented above is also important to evaluate the depreciation of equipment. Let s denote by S is the difference between the purchasing and scrapping values. By assuming an interest rate i and a depreciation period , the annual charge of depreciation as constant payments R can be computed as follows ... 

Fixed costs (fixed charges), which are incurred for a long period of time, tend to be unaffected by fluctuations in the level of production activity. They include depreciation of equipment and buildings, interest charges for the investment capital, plant protection, insurance, fixed part of taxes and rents, fixed part of maintenance costs, and executive salaries (administration, overhead). 

The labor cost is calculated using the internal time spent on the intervention multiphed by the cost of an hour. The external labor is obtained from the invoice, or the hours that were required. The consumahles, depreciation of equipment and tools in general are... 

This is where process economics can get confusing. As we shall see, operating costs include items such as paychecks to employees (assets flowing out) and the depreciation of equipment (assets consumed). More on the latter will be discussed later. The dimensions of Eq. (3.88) are money/time, typically expressed in dollars/year. Revenue in the chemical industry is usually derived from the sale of chemical commodities. Given a nonvarying price for the chemicals and the production rate, the revenue may be calculated with... 

In the fourth case, a plant or a piece of equipment has a limited use-Ril life. The primary reason for the decrease in value is the decrease in future life and the consequent decrease in the number of years for which income will be earned. At the end of its life, the equipment may be worth nothing, or it may have a salvage or scrap value S. Thus a fixed-capital cost Cpc depreciates in value during its useful life of s years by an amount that is equal to (Cpc S). The useful life is taken from the startup of the plant. 

The declining-balance method of depreciation allows equipment or plant to be depreciated by a greater amount during the earlier years than during the later years. This method does not allow equipment or plant to be depreciated to a zero value at the end of the service life. 

Figure 9-5 shows the fall in book value with time for a piece of equipment having a fixed-capital cost of 120,000, a useful hfe of 10 years, and a scrap value of 20,000. This fall in value is calculated by using (I) straight-line depreciation, (2) double-declining depreciation, and (3) sum-of-years-digits depreciation. 

Fixed capital investments are characterized by the fact that they have to be replaced after a number of years commonly referred to as service life or useful life period. This replacement is not necessarily due to wear and tear of equipment. Other factors include technological advances that may render the equipment obsolete. Furthermore, over the usefiil life of the equipment, the plant should plan to recover the capital cost expenditure. In this regard, the notion of depreciation is useful. Depreciation or amortization is an annual allowance which is set aside to account for the wear, tear, and obsolescence of a process such that by the end of the useful life of the process, enough fund is accumulated to replace the process. The simplest method for determining depreciation is referred to as the straight line method in which... 

Expenses associated with the capital cost of equipment. Depreciation will be provided over the useful life of the equipment, varying according to the engineer s estimate. Present-day custom is to write assets down on a straight-line basis, but there are several accepted ways of providing the necessary depletion of the asset value. 

Unless the precautions given in the previous two examples are taken, some employees could be injured or killed. Even if this did not occur the financial loss could be large, since if critical pieces of equipment were damaged it might take months before they could be repaired or replaced and before production could be resumed. For each day the plant does not run a number of expenses continue (salaries, depreciation, taxes, insurance). There is also the problem of supplying customers. If a customer goes to another supplier it may be difficult to lure him back. As a result, the company may furnish him with product made at a distant plant and not charge him the extra transportation expenses, or may buy a competitor s product and sell it to the customer at less than the purchase price. 

After installation, the total cost of equipment (direct permanent investment) is 6,557,000. Allowing 18% for the cost of contingencies and contractor fees ( 1,180,300), the total depreciable capital is estimated to be 7,737,000. Ten percent of this is assumed to cover the cost of startup, 773,700, giving a total permanent investment of 8,511,000. Working capital is estimated to cover accounts receivable that is, the sales of 30 days production of wafers (41,800 wafers), assumed to sell for 260/wafer, giving 10,868,000. Together with a 2-day inventory of wafers, valued at the product price, the total working capital is 11,520,000. Hence, the total capital investment is 20,031,000. 

The reaetive filters suffer from hydraulic blockage due to ealeite crystal staining of the filter granules. Additional equipment (compressors for pressurized air with which the filters ean be periodieally baek-flushed) had to be installed. Not only does this lead to higher eosts due to depreciation of the equipment and more manpower, but also is ineonsistent with the overall coneept of a passive, maintenanee-ffee system. 

Depreciation The Internal Revenue Service allows a deduction for the exhaustion, wear and tear and normal obsolescence of equipment used in the trade or business. (This topic is treated more fufly later in this section.) Briefly, for manufacturing expense estimates, straight-line depreciation is used, and accelerated methods are employed for cash flow analysis and profitability calculations. 

Depreciation A reasonable allowance by the Internal Revenue Service for the exhaustion, wear and tear, and normal obsolescence of equipment used in a trade or business. The property must have a useful life of more than 1 year. Depreciation is a noncash expense deductible from income for tax purposes. 

There are certain costs that are assumed not to depreciate and that are recoverable at the end of the normal service life of the project. Among these are the cost of land, working capital, and salvage value of equipment. These recoverable values must be corrected to their present worth at the startup time. 

The machine costs comprise the interest of the invested capital, depreciation of the equipment, energy needed, labour cost, maintenance, accommodation cost, etc. The... 

The first prototype processor will deacidify about 50 books/hr. Under the specific local conditions of labor, power, and materials cost in Richmond, Va., it is estimated that it costs about 0.32 to deacidify each pound of book. This includes all material and labor costs and a five-year, straight-line depreciation of the equipment cost. 

Examples Application of annuities in determining amount of depreciation with discrete interest compounding. A piece of equipment has an initial installed value of 12,000. It is estimated that its useful life period will be 10 years and its scrap... 

The original cost for a distillation tower is 24,000 and the useful life of the tower is estimated to be 8 years. The sinking-fund method for determining the rate of depreciation is used (see Example 5), and the effective annual interest rate for the depreciation fund is 6 percent. If the scrap value of the distillation tower is 4000, determine the asset value (i.e., total book value of equipment) at the end of 5 years. 

Because the engineer thinks of depreciation as a measure of the decrease in value of property with time, depreciation can immediately be considered from a cost viewpoint. For example, suppose a piece of equipment had been put into use 10 years ago at a total cost of 31,000. The equipment is now worn out and is worth only 1000 as scrap material. The decrease in value during the lo-year period is 30,000 however, the engineer recognizes that this 30,000 is in reality a cost incurred for the use of the equipment. This depreciation cost was spread over a period of 10 years, and sound economic procedure would require part of this cost to be charged during each of the years. The application... 

The following tabulation for estimating the life of equipment in years is an abridgement of information from Depreciation-Guidelines and Rules (Rev. Proc. 62-21) issued by the Internal Revenue Service of the U.S. Treasury Department as Publication No. 456 (7-62) in My, 1962. See Table 2 for an extended and more flexible interpretation including repair allowance as approved by the Federal regulations in 1971. 

A reactor of special design is the major item of equipment in a small chemical plant. The initial cost of the completely installed reactor is 60,000, and the salvage value at the end of the useful life is estimated to be 10,000. Excluding depreciation costs... 

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