Factorial method of costing

The installed cost can be calculated by using the factorial method of costing discussed in Chapter 6. 

The factorial method of cost estimation is often attributed to Lang (1948). The fixed capital cost of the project is given as a function of the total purchase equipment cost by the equation ... 

The cost of the purchased equipment is used as the basis of the factorial method of cost estimation and must be determined as accurately as possible. It should preferably be based on recent prices paid for similar equipment. 

The factorial method of cost estimation requires the purchase cost of the major equipment items in the process. Other fixed costs are... 

The value of the constant B and the index n depend on the pipe material and schedule. The installed cost can be calculated by using the factorial method of costing discussed in Chapter 6 ... 

The factorial method of cost estimation is based on purchased equipment costs and therefore requires good estimates for equipment costs. Costs of single pieces of equipment are also often needed for minor revamp and de-bottlenecking projects. 

The arbitrariness of this practice was not always as great as it is today. In the early years of the 20th Century when current methods of cost accounting took shape, direct labor contributed heavily to manufacturing costs. There was little in the way of overhead to support these functions. The result was far less distortion from allocations. Today, factories depend much less on direct labor. So, much more of a company s cost is allocated using these rules. 

Avoid the use of instrumentation that may have low first cost, but is very expensive to operate or maintain. Blind controllers, for example, are completely unsatisfactory for most applications. The author has seen examples of temperature controllers set at the factory, but with no method of readout or calibration. These almost always require retrofitting of additional instrumentation later. Internal level floats on process vessels that require plant... 

The basis of the Factorial Methods is to use quotes or estimates of the delivered costs of the MPls and to multiply these up by so-called installation to obtain a total installed cost [40, 41]. 

This method of stabilization is very expensive, and takes an exceptionally long time — several days. It is therefore necessary to arrange a considerable number of kiers and hence a large and costly installation is required. Pascal [1] states that in a factory to produce 100 tons of nitrocotton a day some 400-500 vessels of 2-4 m3 should be installed. 

The factorial method therefore yields a capital cost estimate of Capital Cost = Fixed Costs + Working Capital = AS1 1 million + As2.45 million = AS1 3.5 million... 

The ratio method provides an estimate of AS1 2.9 million. This can be regarded as reasonably accurate ( 30%) considering the original plant cost data is 7 years old. The factorial method has produced a surprisingly similar result. This is probably due to the fact that the plant is not particularly large, and the possibility of estimation cost inaccuracies is reduced. The estimate of AS1 3.5 million determined by the factorial cost technique should therefore also be regarded as an acceptably accurate value. 

The last twenty years of the last millennium are characterized by complex automatization of industrial plants. Complex automatization of industrial plants means a switch to factories, automatons, robots and self adaptive optimization systems. The mentioned processes can be intensified by introducing mathematical methods into all physical and chemical processes. By being acquainted with the mathematical model of a process it is possible to control it, maintain it at an optimal level, provide maximal yield of the product, and obtain the product at a minimal cost. Statistical methods in mathematical modeling of a process should not be opposed to traditional theoretical methods of complete theoretical studies of a phenomenon. The higher the theoretical level of knowledge the more efficient is the application of statistical methods like design of experiment (DOE). 

Figure 30.12 represents a cell factory model to produce several categories of products via fermentation and biocatalysis processes. Industrial-scale manufacturing aspects such as uses, synthesis methods, and costs of some of these products are reviewed below as well as in Chapter 32. 

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