Variable cost

Operating costs are conveniently considered in two groups, fixed and variable costs those dependent on production rate and those that are independent of production rate. Operating costs can be further broken down into a number of key elements as indicated in Table 14.1, where estimation guidelines for continuous plant are also given [42]. Of critical interest in the present context is how these values vary between a batch and a continuous plant of nominally the same production rate. 

Let us now examine these cost components in more detail and look first at the variable costs. There are different views as to which items should be regarded as variable and which fixed, but the split described here is widely accepted. 

Raw material costs Energy input costs Royalty and licence payments 

Variable cost elements (total sum 000/year varies with plant output) 

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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. 

There can be an element of maintenance costs that is fixed and an element which is variable. Fixed maintenance costs cover routine maintenance such as regular maintenance on safety valves which must be carried out irrespective of the rate of production. There also can be an element of maintenance costs which is variable. This arises from the fact that certain items of equipment can need more maintenance as the production rate increases. Also, royalties which 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. 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 s capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

EP = value of products - fixed costs - variable costs - taxes... 

When synthesizing a flowsheet, these criteria are applied at various stages when there is an incomplete picture. Hence it is usually not possible to account for all the fixed and variable costs listed above. Also, there is little point in calculating taxes until a complete picture of operating costs and cash flows has been established. 

The business plan needs to provide projections of aimual production. Based on those estimates and assumed food conversion rates (food conversion is calculated by determining the amount of feed consumed by the animals for each kilogram of weight gain), an estimate of feed costs can be made. For many aquaculture ventures, between 40 and 50% of the variable costs involved in aquaculture can be attributed to feed. 

This includes labor costs, variable costs, overhead, taxes, and depreciation. 

Among the key variables in strategic alkylphenol planning are feedstock quaHty and availabiHty, equipment capabiHty, environmental needs, and product quahty. In the past decade, environmental needs have grown enormously in their effect on economic decisions. The manufacturing cost of alkylphenols includes raw-material cost, nonraw-material variable cost, fixed cost, and depreciation. 

Nonraw-material variable costs consist largely of utiHty costs, but other costs can be significant in this area. Eor example, operating costs for additional waste treatment are in this category. Nonraw-material variable costs account for 5—20% of the total manufacturing cost of an alkylphenol operation. 

In terms of the derived general relationships (3-1) and (3-2), x, y, and h are independent variables—cost and volume, dependent variables. That is, the cost and volume become fixed with the specification of dimensions. However, corresponding to the given restriedion of the problem, relative to volume, the function g(x, y, z) =xyh becomes a constraint funedion. In place of three independent and two dependent variables the problem reduces to two independent (volume has been constrained) and two dependent as in functions (3-3) and (3-4). Further, the requirement of minimum cost reduces the problem to three dependent variables x, y, h) and no degrees of freedom, that is, freedom of independent selection. 

If the sales volume exceeds the annual production rate by 10 percent and the inventory is valued at the sales price, then Eq. (9-153) shows that the profit margin is (A vf/As)100 = 0 percent. If the inventory is valued at the total variable cost, then the profit margin (A vf/As)100 = (0.1)(1 — 0.7) (100) = 3 percent. Hence, the value of the inventoiy is of vital importance. 

Total variable cost. (This includes both production and general expenses.)... 

Methods 1, 2, and 4 are termed direct costing, variable costing, and marginal costing respectively. Although direct costing is being increas-... 

In addition to fixed and variable costs there are mixed or semivari-... 

In practice, annual direct variable costs such as raw materials, utilities, etc., are not always proportional to the production rate. 

Effective planning is again the key. We need to keep in mind that proper decontamination can be costly, but improper decontamination can be even more costly. One large but variable cost is the time it takes workers to decontaminate. The time that decontamination will take should be estimated and incorporated into the budget. In addition, contamination control and decontamination strategies and procedures should be outlined in the safety plan, communicated to workers, and implemented before any worker enters any area where there is a potential to become contaminated. 

These models, however, can be useful if estimates are to be made of operating costs. By assigning fixed and variable costs to each activity, average and marginal unit costs at each stage of the process can be easily calculated, which will assist in decisions regarding pricing policies or whether to buy in components and materials or make them on site. ATPLAN is an example of a network-based model of this type. 

In Figure 61.10 fixed costs are shown above the variable costs and the non-recovery of the fixed costs below the break-even point is more clearly demonstrated. The contribution to fixed costs is of significance in the consideration of marginal costing. 

In practice, costs do not increase smoothly or remain constant. Fixed costs frequently move in a series of steps and variable costs change unevenly. There may be several break-even points at different levels of sales and outputs (Figure 61.11). 

Based on information in the literature, the costs for utilities are about 10% of die total variable costs, in our case being 050 kg 1 phenylalanine produced. Variable costs are summarised in Table 8.6. 

Basically the variable cost elements are those elements of piece cost whose values are dependent on the number of pieces produced. For most plastics fabrication processes the principal variable cost elements are the material, direct labor, and energy costs. 

The simplest economic model for the guidance of the catalyst chemist is the standard cost sheet. This lists the variable costs (raw materials), fixed costs (capital charges) and semi-variable costs (conversion expense). Typically, these three elements may represent similar proportions of the overall cost per ton of product, but the circumstances following successful catalyst research can vary widely. 

The decision theory is valid for variable costs but does not consider the problem of capacity allocation. In many contexts, screening capacity is a sunk cost, and there is a need to consider the straw that broke the camel s back, the first compound that exceeds capacity. There is no need to ration resources that are not scarce and have trivial variable costs relative to the potential value that their use can create. This reasoning leads naturally back to use of easily understood, intuitive flow and capacity visualizations for the relevant simulations. 

A problem long appreciated in economic evaluations, but whose seriousness has perhaps been underestimated (Sturm et al, 1999), is that a sample size sufficient to power a clinical evaluation may be too small for an economic evaluation. This is mainly because the economic criterion variable (cost or cost-effectiveness) shows a tendency to be highly skewed. (One common source of such a skew is that a small proportion of people in a sample make high use of costly in-patient services.) This often means that a trade-off has to be made between a sample large enough for a fully powered economic evaluation, and an affordable research study. Questions also need to be asked about what constitutes a meaningful cost or cost-effectiveness difference, and whether the precision (type I error) of a cost test could be lower than with an effectiveness test (O Brien et al, 1994). 

The cost price of a bulk chemical is determined primarily by the cost of raw materials, which could represent > 80% of the total costs. Process development/improvement in bulk chemicals is, hence, focused on decreasing these variable costs, e.g. for a product with a volume of 100,000 tpa and a raw materials quote of 2/kg, 1% increase in yield corresponds to savings of 2 million per annum. In fine chemicals, in contrast, emphasis is placed on the reduction of fixed costs, which are relatively high, by process simplification. For example, for a product with a volume of 100 tpa and fixed costs of 40/kg, if the volume yield (amount produced per unit reactor volume) is doubled, this corresponds to savings of 2 million per annum. 

The exercises described below will help the organic farmer to decide whether an enterprise should be started, expanded, modified, or even discontinued. There are different methods of costing absorption or full costing, and marginal or variable costing. These have different uses which are discussed below. 

Selling price x Quantity sold = Fixed costs + (Variable costs x... 

Sales price x Quantity sold = Revenues — Variable costs per unit... 

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