Sales Revenue

The chapter concludes with a discussion of the use of the Aspen Icarus Process Evaluator (IPE) in the Aspen Engineering Suite and an economics spreadsheet to calculate profitability measures. As described in the previous chapter. Aspen IPE can be used in connection with a simulation program, such as ASPEN PLUS, CHEMCAD, HYSYS.Plant, or PRO/II, and it can be used independently. 

2 ANNUAL SALES REVENUES, PRODUCTION COSTS, AND THE COST SHEET 

Many continuing costs are associated with the operation of a chemical plant. These are included in the cost sheet shown in Table 17.1, which is patterned after one prepared by Busche (1995) and includes representative unit costs (typical factors) that can be used for early estimates when more exact costs are not available. 

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To evaluate design options and carry out preliminary process optimization, simple economic criteria are required. What happens to the revenue from product sales after the process has been commissioned The sales revenue first pays for fixed costs which are independent of the rate of production. Variable costs, which do depend on the rate of production, also must be met. After this, taxes are deducted to leave the net profit. 

The expected annual sales volume is important not only for estimating sales revenue, but also for the selection of plant capacity (20) or process type. An economy of scale is typical of many process operations because both investment and some operating costs tend to vary with capacity to a fractional power less than unity. 

Fig. 1. Annual money flows diagram. Outflows are to the left, ie, total capital investment, and are negative. Inflows are to the right, ie, sales revenues, and...

Money Flows. Estimation of sales revenues and manufacturing expenses has been discussed. Depreciation, part of the manufacturing expense, is treated separately in the money flow, as is interest. 

Working capital Total capital Sales revenue... 

Fig. 4. Effect of NPV on profitabihty where investment and lifetime are the same for all Ventures (see Table 4). (a) Sale revenues for Ventures B and C have been selected so that at a discount rate of 10% per year Ventures A, B, and C each have the same NPV and NRR. IRR values are as given and do not relate to NPV, NRR, or total return rate (TRR). The diagram indicates that at discount rates less than 10%, Venture C has the largest NRR, but the IRR indicates Venture B is the choice for all discount rates, (b) Sale revenues for Ventures D and E have been selected so that Ventures A, D, and E each have a different NPV at a discount rate of 10% per year, but all three have the same IRR. The diagram indicates that at the selected discount rate of 10%, the...

Fig. 6. Effect of investment on profitabiUty. Venture G has a larger investment and sales revenue than Venture A (see Table 4). NPV at 10%, operating lifetime, and IRR are the same for both ventures. The diagram indicates that the profitabiUty of Venture G, as indicated by NRR, is smaller than that for...

A typical break-even chart is used with production models to predict optimum production levels, break-even points, and shutdown conditions under various scenarios. These models tend to involve a reasonable amount of approximation. For example, sales revenue as a function of production level involves numerous variables and relationships that are not always weU known. Such charts, however, provide useful guides for production operations. 

For a new produc4, the ratio of manufacturing expense to sales price Ch e/cs should be compared with the ratio of total manufacturing cost or expense to sales revenue for the company as a whole. If the ratio Ch e/cs is less than or equal to the ratio for the company, then the proposed sales price appears to be reasonable and the product is probably commerci ly viable. This comparison is, of course, used only as an approximate guide in preliminary assessments. 

The individual variances in Table 9-40 show that the increased profit is due to reduced material costs, which affect manufacturing costs to a greater extent than increased labor and overhead costs. The individual variances also show that to an even greater extent the increased profit is due to the increase in sales revenue. 

Clearly, management will wish to investigate both labor and overhead costs for any inefficiencies and to ascertain the reasons for the improved sales revenue. If necessary, the standard values can be revised. 

We notice that profit is obtained as the difference between two large cash sums and that variances of some 3 percent in manufacturing costs and sales revenue have resulted in a variance of some 33 percent in gross profit. 

Capital ratio = (fixed-capital investment)/(anniial sales revenue). 

Clearly the largest application for filtration is air pollution control. On a worldwide basis the annual sales revenues for all types of pollution control equipment is around 150 billion dollars, with air pollution control devices being a substantial part of tliese equipment sales. The following is a summary of Web sites recommended to be consulted for specific vendor information on air filtration devices. A brief description of each site is provided. Many of these sites will link the reader to other sites containing additional information on product information. 

In most instances gas processing plants are installed because it is more economical to extract and sell the liquid products even though this lowers the heating value of gas. The value of the increased volume of liquids sales may be significantly higher than the loss in gas sales revenue because of a decrease in heating value of the gas. 

There can be an element of maintenance that is a fixed and an element that is variable. Fixed maintenance costs cover routine maintenance such as statutory maintenance on safety equipment that must be carried out irrespective of the rate of production. Variable maintenance costs result from certain items of equipment needing more maintenance as the production rate increases. Also, the royalties that cover the cost of purchasing another company s process technology may have different bases. Royalties may be a variable cost, since they can sometimes be paid in proportion to the rate of production or sales revenue. Alternatively, the royalty might be a single-sum payment at the beginning of the project. In this case, the single-sum payment will become part of the project capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

Grabowski, H. and J. Vernon (2000), The distribution of sales revenues from pharmaceutical innovation , PharmacoEconomics, 18 (supplement 1), 21-32. 

The occurrence of the set-up procedure in period i is denoted by the binary variable Wi (0 = no, 1 = yes). The production costs per batch are denoted by p = 1.0 and the cost for a set-up is y = 3.0. Demands di that are satisfied in the same period as requested result in a regular sale Mi with a full revenue of a = 2.0 per unit of product. Demands that are satisfied with a tardiness of one period result in a late sale Mf with a reduced revenue of aL = 1.5 per unit. Demands which are not satisfied in the same or in the next period result in a deficit Bf with a penalty of a = 0.5 per unit. The surplus production of each period is stored and can be sold later. The amount of batches stored at the end of a period is denoted by Mf and the storage costs are a+ =0.1 per unit. The objective is to maximize the profit over a horizon of H periods. The cost function P contains terms for sales revenues, penalties, production costs, and storage costs. For technical reasons, the model is reformulated as a minimization problem ... 

The objective is to maximize the profit which is calculated by a cost model of sales revenues, production costs, storage costs, and penalties for lateness and for finishing line start-ups and shut-downs. The cost model adds some equality and inequality constraints with associated real valued variables for the sales, deficits, and the storage, but it does not further restrict the feasibility of the production decisions. 

The top 10 pharmaceutical companies in July 2007 are shown in Table 1.4. These 10 companies account for almost half the global sales of drugs. Of significance is that, in the same period, the companies collectively spent in excess of US 40 billion in research and development (R D). This amount is more than 10% of their sales revenues, showing the importance of R D for these companies. 

A common acconnting manipulation is to change the income recognition policies or bnsiness model to accelerate sales revenue. Businesses... 

Table 11.3 presents summary descriptive statistics for those relationships for which financial data were available. Descriptive statistics are provided for sales revenue, operating profit, operating margin, concentration of purchases with the top two vendors, share of purchases with the largest alternative vendor, and overall satisfaction with the largest alternative vendor. Again, to protect confidentiality, contribution margin is not disclosed. 

The first row-block compares descriptive statistics for customers grouped into three sales revenue groups. Moderately sized accounts, defined for exposition as those with purchases of between 0.5 million... 

Proportion of the sample (%) Overall satisfaction Share of customer purchases (%) Sales revenue ( m) Operating profit( k) Operating margin (%)... 

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