Profitability analysis selling price

If utilities are supplied to the new project from some other source, the cost and amount must be determined. If purchased from a second party, the cost will be determined by contract and can be estimated by discussions with the vendor. If utilities are transferred from an affiliated source, the cost must include a profit to the supplying entity. Some estimators use a lower return on utility plants than on a new hydrocarbon processing unit, since the utility can be used for some alternate plant if the new one shuts down for any reason. However, the preferred analysis allows a high enough utility transfer price to provide the same return on the utilities as the new unit being studied. This can require a trial and error approach, especially if the utilities are a significant part of the selling price of the product. 

The DOE report evaluated the sensitivity of the model results to changes in selected variables such as capital investment, labor, utilities, and product prices. In this analysis, all but one of the variables were held constant and the selected variable was evaluated from minus 20 percent of the assumed value to plus 20 percent, in 10 percent increments. The two variables with the largest impact on profitability were the tire tipping fees (fees paid for the disposal of scrap tires — an income for tire acquisition cost), and selling price of the products. Table 8-7 summarizes the tipping fees and product selling prices... 

Therefore, the economic potential at the I/O level could be seen merely as a tool for selecting the chemical route, and at the same time for setting targets when purchasing raw materials. As a rule of thumb, the ratio of selling prices of products to the purchasing prices of raw materials should be a minimum of two when the payback time of the total capital investment is greater than five years. Preferably, this ratio should be about three for a payback time of three years [3]. More accurate calculations may be carried out easily by means of profitability analysis tools. 

In this paper, an existing methodology (Bagajewicz, 2007) for the development of consumer products is applied to winernaking. We use a price demand model that incorporates product quality and allows the determination of the most profitable product, which is not always the best product from the consumer s perspective- a well known fact. The parameters of the model are however, rmcertain, especially in the wine case. Thus, design under uncertainty needs to be performed. We present an analysis of profitable scenarios and their associated risk. The method allows vineyards to pick a specific wine quahty, a production rate and bottle selling price based on their desired profitability and tolerable level of associated risk. 

This first step involves crucial cost elements, as the selling price of products and purchasing price of raw materials, which by far dominate the profitability of any chemical process. If this information is not reliable Ifom the beginning, it will blur the whole analysis, whatever the accuracy of other costs could be. 

Each company and each economist has one or more ways of determining profitability by economic analysis. It is not the purpose of this book to elaborate on these. Excellent books on chemical engineering economy are listed in the Additional Selected References. However, three of the more popular methods will be discussed (1) return on investment, (2) pay-out time, (3) project present worth. To proceed with the economic analysis, net or new earnings must first be determined from selling price less costs. 

Income from Salable Products. This covers the sale of the by-products as well as the principal productfs), which is primarily monitored by the market and sales group. The interrelationships among selling price, market demand and supply, production capacity, and investment return require careful economic analysis. In many cases, particularly new ventures, this can only be detei mined by a profitability analysis, e.g.,... 

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