Expense annual manufacturing

The total annual expense A g required to produce and sell a product can be written as the sum of the annual general expense Age. nd the annual manufacturing cost or expense A. g ... 

FIG. 9-1 Relationship between annual costs, annual profits, and cash flows for a project. A d — annual depreciation allowance Acf — annual net cash flow after tax Ac/ = annual cash income Age = annual general expense Aqp = annual gross profit A/r = annual tax A e = annual manufacturing cost Avc/ = annual net cash income Avvp = annual net profit after taxes A/ p = annual net profit As = annual sales Apc = annual total cost (DCFRR) = discoiinted-cash-flow rate of return (NPV) = net present value. 

Holland et al. (1953) developed an expression for estimating annual manufacturing expenses for production rates other than the base case based upon fixed capital investment, labor requirements, and utility expense. 

If it is desired to estimate the annual manufacturing expense at some rate other than a base case, the following modification may be made ... 

All pharmaceutical companies with NHS brand-name drug sales over 500,000 are included in the Scheme, but only firms with sales over 4 million must submit financial records for a yearly assessment of their allowable profit rates (44). These 65 or so companies provide audited annual financial reports that document their total sales to the NHS including expenses for manufacturing, distribution, promotion, and R D associated with those sales, and the capital employed in generating the NHS sales. At most, 9 percent of a company s total NHS sales may be claimed for promotional expenses, but an additional allowance is made for informational activities (386). The PPRS attempts to pay for its share of R D by allowing firms to apply their worldwide ratio of R D... 

Large quantities of explosives are used every year. In the United States, for example, the annual consumption exceeds over 2 million tonnes. Most are used for commercial purposes and are ammonium nitrate-based formulations. There are less than a dozen chemical explosives that are manufactured in bulk quantities, and most of these were discovered in the 50-year period between 1850 and 1900. New explosives have been synthesized but optimization of the formulations takes decades and is very expensive. Consequently, any new material has to offer very significant advantages, either in terms of unique performance for military applications or in terms of cost and safety for commercial applications. 

Equation (9-9) may also be used to calculate data for a plot of manufacturing expense as a function of annual production rate, as shown in Fig. 9-7. Plots of these data show that the manufacturing expense per unit of production decreases with increasing plant size. The first term in Eq. (9-9) reflects the increase in the capital investment by using the 0.7 power for variations in production rates. Labor varies as the 0.25 power for continuous operations based upon experience. Utilities and raw materials are essentially in direct proportion to the amount of product manufactured, so the exponent of these terms is unity. 

The net annual profit is the difference between the revenue from sales and the total manufacturing expenses. Out of this profit, the company has to pay income taxes, which are supposed to equal 50% of the net annual income. The after-tax net annual income is the difference between the net annual income and the income taxes. 

The great importance of manufactured fibers in the chemical industry and in the overall economy of the United States (and, in general, the developed countries) becomes apparent when the volume of production of these materials is considered and compared with the market value of even the least expensive of the raw materials used by them. The amounts of oil and natural gas consumed by the manufactured fiber industry represent around 1 percent of national annual usage. 

Example 1 Determination of rate of return on investment-consideration of income-tax effects. A proposed manufacturing plant requires an initial fixed-capital investment of 900,000 and 100,000 of working capital. It is estimated that the annual income will be 800,000 and the annual expenses including depreciation will be 520,000 before income taxes. A minimum annual return of 15 percent before income taxes is required before the investment will be worthwhile. Income taxes amount to 34 percent of all pre-tax profits. 

Example 6 An extreme situation to illustrate result of replacement economic analysis. A new manufacturing unit has just been constructed and put into operation by your company. The basis of the manufacturing process is a special computer for control (designated as OVT computer) as developed by your research department. The plant has now been in operation for less than one week and is performing according to expectations. A new computer (designated as NTR computer) has just become available on the market. This new computer can easily be installed at once in place of your present computer and will do the identical job at far less annual cash expense because of reduced maintenance and personnel costs. However, if the new computer is installed, your present computer is essentially worthless because you have no other use for it. 

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