Expense, manufacturing-operating indirect

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. 

The manufacturing cost consists of direct, indirect, distribution, and fixed costs. Direct costs are raw materials, operating labor, production supervision, utihties, suppHes, repair, and maintenance. Typical indirect costs include payroll overhead, quaHty control, storage, royalties, and plant overhead, eg, safety, protection, personnel, services, yard, waste, environmental control, and other plant categories. However, environmental control costs are frequendy set up as a separate account and calculated direcdy. The principal distribution costs are packaging and shipping. Fixed costs, which are insensitive to production level, include depreciation, property taxes, rents, insurance, and, in some cases, interest expense. 

This manufacturing expense sheet has four distinct parts the heading, raw material section, direct conversion expenses, and indirect conversion expenses. The heading identifies the product to be made, the amount produced, the fixed capital investment, and sometimes the location, yields, operating time, and other items. The raw material includes the raw materials used to produce the product as well as any by-products for which credit may be received. The direct expenses include utilities, labor, and maintenance. The sum of these two sections is the direct conversion expense. The indirect expenses include the depreciation and plant indirect expenses, such as plant security, fire protection, roads, docks, and so forth. These expenses occur continually regardless of whether a product is produced. The sum of these expenses is the total indirect conversion expense. 

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