Manufacturing-cost estimation contribution analysis

TCM uses an approach to cost estimating in which each of the elements that contribute to the total cost is estimated individually. These individual estimates are derived from basic principles and the manufacturing process. This reduces the complex problem of cost analysis to a series of simpler estimating problems and brings processing expertise rather than intuition to bear on solving these problems. 

The processes for manufacturing methanol by synthesis gas reduction and ethanol by ethylene hydration and fermentation are very dissimilar and contribute to their cost differentials. The embedded raw-material cost per unit volume of alcohol has been a major cost factor. For example, assuming feedstock costs for the manufacture of methanol, synthetic ethanol, and fermentation ethanol are natural gas at 3.32/GJ ( 3.50/10 Btu), ethylene at 0.485/kg ( 0.22/lb), and corn at 0.098/kg ( 2.50/bu), respectively, the corresponding cost of the feedstock at an overall yield of 60% or 100% of the theoretical alcohol yields can be estimated as shown in Table 11.12. In nominal dollars, these feedstock costs are realistic for the mid-1990s and, with the exception of corn, have held up reasonably well for several years. The selling prices of the alcohols correlate with the embedded feedstock costs. This simple analysis ignores the value of by-products, processing differences, and the economies of scale, but it emphasizes one of the major reasons why the cost of methanol is low relative to the cost of synthetic and fermentation ethanol. The embedded feedstock cost has always been low for methanol because of the low cost of natural gas. The data in Table 11.12 also indicate that fermentation ethanol for fuel applications was quite competitive with synthetic ethanol when the data in this table were tabulated in contrast to the market years ago when synthetic ethanol had lower market prices than fermentation ethanol. Other factors also... 

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