Ch 22 Cost Accounting and Capital Cost Estimation

22.1 Cost Accounting

Double Entry Accounting
Non-intuitive method for debits and credits
debits increase assets, credits decrease asset
Annual Reports and Profitability of Companies
Profits and Losses
Return on Investment
Cash flow
Shareholder equity
Read this section for your own edification. Not on the test but some
Interesting (and possibly profitable) info that you wont find in CHE
4200.

22.2 Cost Indexes for Capital Investment

How costs scale with time:

Cost = Base Cost (I/Ibase)

Allows us to estimate current cost of equipment using cost tables
complied in the past, and an index I that measures the change in
costs with time.
Indexes:
1. Chemical Engineering (CE) Plant Cost Index Chemical Engineering
Magazine.
2. Marshall & Swift (MS) Equipment Cost Index Chemical
Engineering Magazine.
3. Nelson-Ferrar (NF) Refinery Construction Cost Oil & Gas Journal
4. Engineering News-Record (ENR) Engineering News-Record

fig_22_01

table_22_06

Example: How much would a piece of process equipment that cost $10,000 in
1990 cost in 2006? Use Marshall-Swift Index.
I1990 = 935
I2006 = 1365
Cost = $10,000 (1365/935) = $14,599
What if we use CE index?
I1990 = 358
I2006 = 500
Cost = $10,000 (500/358) = $13,966
Note about 5% difference.

Scaling with Process/Plant Capacity

cost2/cost1 = (capacity2/capacity1)0.6
general rule of thumb for scaling with capacity
Example: cost ratio to double capacity = 20.6 = 1.52
Can be used with Index-scaling for order-of-magnitude cost estimation:
Total Deprecible Capital Investment (TDC):
CTDC = Cb [(lbs/yer)/(production rate)]0.6 (I/Ib)
Simple Estimate for Commodity Chemical Plant: Get Cb (1995 cost) and
production rate from Table 22.8.

table_22_08

Example: Estimate CTDC in 2006 for a plant to produce 90 ton/day chlorine

and 100 ton/day NaOH based on 330day/year operation.
Capacity = (90ton/d) (2000 lb/ton)(330 day/yr) = 59,400,000 lb/yr
Base production rate = 360,000,000 lb/yr, from Table 22.8
Cb (1995 basis) = $80,000,000, from Table 22.8
I (for 2006) = 500 ; Ib (for 1995) = 358, from Table 22.6 (CE index)
CTDC = $80M (59.4M/360M)0.6 (500/358) = $35.6M

table_22_09

table_22_10

Detailed Cost Estimation Methods:

Order of Magnitude Estimate (+/- 50%)Based on equipment modules,
product flow rates,and processing factors.
Lang Method (+/- 35%) Based on cost of individual equipment items in PFD.
Guthrie (+/- 20%) Based on the cost of individual equipment items.
HYSYS Cost Estimation.

Order of Magnitude Cost Estimate

Input data:
1. Production rate, lb/year
2. Process Flow sheet with
i) gas compressors
ii) reactors
iii) separation equipment
note: heat exchangers & pumps not needed, and equipment
doesnt need to be sized.
Sequential calculations to get Total Capital Investment, CTCI:
1. Module Costs, CM , for major equipment.
2. Total Bare Module Cost, CTBM , for plant.
3. Direct Permanent Investment, CDPI.
4. Total Permanent Investment Cost, CTPI
5. Total Capital Investment, CTCI

Module Costs, CM (2006 MS Basis), for major equipment

for each item: CM = FPR FM (Design P/100psi)0.25 x $160,000
if P>100psi
Production Factor: FPR = [(product flow rate, lb/yr)/(107)]0.6
Material Factor
carbon steel
copper
stainless steel
nickel alloy
titanium clad

FM
1.0
1.2
2.0
2.5
3.0

Total Bare Module Cost, CTBM

- includes piping, instrumentation, controls, indirect costs.
- cost updated to current MS cost index.

CTBM = FPI (MSindex/1365) CM

Type of Process
solids handling
solids-fluids handling
fluids handling

FPI
1.85
2.00
2.15

Direct Permanent Investment, CDPI

accounts for site preparation, service facilities, utilities, etc.

CDPI = (1 + F1 + F2) CTBM

Type of construction
outdoor
indoor + outdoor
indoor

F1
0.15
0.40
0.80

Type of facilities
minor addition
major addition
grass-roots

F2
0.10
0.30
0.80

Final steps for Order of Magnitude Estimate

Total Permanent Investment, CTPI

10% cost for land, royalties, start-up
40% contingency

CTPI = 1.5 CDPI

TOTAL CAPITAL INVESTMENT, CTCI
Adds 15% working capital to CTPI

CTCI = 1.15 CTPI

Accuracy +/- 50% for low pressure processes.
May be low by as much as 100% for moderate to
High pressure processes.