Manufacturing-cost estimation product pricing

For firm production cost estimates, the prices listed in these journals should be verified by consulting the suppliers to make sure that they apply to the quality and quantity of the individual chemicals required in the projected manufacturing operations. Prices for chemicals not listed in the journals should be obtained from the suppliers. Current market prices of chemicals the company purchases for its manufacturing operations as well as interdepartmental or divisional transfer prices of chemicals produced and consumed within the company may be obtained from company files. Such price information is not available to individuals outside the company. Credit for by-products varies with each particular case. Generally, by-products are credited at their sales price minus additional selling, shipping, and purification costs, if any. 

Cost of business interruption. The cost of business interruption is significantly influenced by various commercial factors. For example, if you are not producing at fiill capacity it may be possible to make up lost production at other facilities or when the plant comes back into operation. The business interruption costs will only be the additional costs of production, transportation and any lost sales. As these conditions can vary from month to month it may be more appropriate to adopt a standard method of calculating business interruption costs for PSM and ESH purposes. One commonly adopted approach is to estimate the tonnage of production lost and calculate the cost as being the difference between the sale price and all manufacturing, storage and transportation costs. 

With the current energy demands increasing, the unit costs of all utilities are increasing. Any prices quoted need to be reviewed periodically to determine their effect on plant operations. A company utility supervisor is a good source of future price trends. Unfortunately, there are no shortcuts for estimating and projecting utility prices. Utilities are the third largest expense item in the manufacture of a product, behind raw materials and labor. 

Sometimes the quantities needed are so small that it is not economical for a supplier to manufacture them or the cost to do it would be extremely high and would not be affordable for the new product. This can be very important to the initial introduction of the product. Both you and the supplier have to make money so the price of the product needs to reflect the costs required to produce it. It is very easy to get caught up in the grandiose ideas of a new product, not watch the costs, and end up in trouble. Perhaps existing equipment can be modified to get the small quantities and not require a significant capital investment. A very realistic projection of the demand for the new product has to be developed so that a cost estimate can be made to reflect the market potential for the new product. 

When evaluating the product and methods for its manufacture, possibly including the design of a process to produce the desired chemicals, the methods of capital-cost estimation, profitability analysis, and optimization, discussed previously in Chapters 16-18, are often utilized. However, for products that can be sold at a high price, due to large demand, lack of competition, and limited production, detailed profitability analysis and optimization are less important. For these products, it is most important to reduce the design and manufacturing time to capture the market before competitive products are developed. 

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