Although not part of the costs, it is customary practice to subtract here any
variable credits such as:
• By-product credits
• Utility credits
More appropriately, these concepts should be entered under a separate heading
of variable credits.
If the establishment of a cost of production is the main objective of the analysis,
all the various costs are added up to the final grand total. If, on the other hand,
it is desired to calculate an income or cash flow result, the various costs will be
added up and the result subtracted from a base term that will comprise the revenue
generated by the production of all major products or coproducts assumed sold at
prevailing market prices estimated at an equivalent production level from other
manufacturers.
Operating Costs and Operating Expenses
These are typically fixed operating charges unless there is a major revision of the
plant’s operating conditions. Typical items are:
• Labor
• Maintenance
• Plant insurance
• Property taxes
• Direct overhead
• General plant overhead
• Sales and administration expenses
and, possibly, many others depending on an individual plant’s characteristics and
accounting basis. In general, all these expenses are fixed in that they remain about
the same on an annual basis irrespective of the plant’s actual running capacity.
Naturally, if business is poor and production rates are low on a consistent or
extended basis, we can expect that measures will be taken to lower these charges
to the extent that it may be feasible (e.g., reduction in labor through layoffs or
reduction in overheads through some other belt-tightening measures), but, in
general, changes in these concepts will always be limited, short of shutting down
the plant.
Labor
Labor includes the personnel required at various skill levels to operate the unit on a
24-h basis. Since shifts usually run for 8 h, a minimum of three operators are
required to staff each position. Actually, because of holidays, vacation, leave time,
etc., the staffing requirements are considerably higher.
An average year of 365.25 days consists of 8,766 h. The basic work load per
individual at 8 h/day and 5 days/week is about 2,090 h/year, corresponding to an
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D.S.J. Jones and P.R. Pujado ´
variable credits such as:
• By-product credits
• Utility credits
More appropriately, these concepts should be entered under a separate heading
of variable credits.
If the establishment of a cost of production is the main objective of the analysis,
all the various costs are added up to the final grand total. If, on the other hand,
it is desired to calculate an income or cash flow result, the various costs will be
added up and the result subtracted from a base term that will comprise the revenue
generated by the production of all major products or coproducts assumed sold at
prevailing market prices estimated at an equivalent production level from other
manufacturers.
Operating Costs and Operating Expenses
These are typically fixed operating charges unless there is a major revision of the
plant’s operating conditions. Typical items are:
• Labor
• Maintenance
• Plant insurance
• Property taxes
• Direct overhead
• General plant overhead
• Sales and administration expenses
and, possibly, many others depending on an individual plant’s characteristics and
accounting basis. In general, all these expenses are fixed in that they remain about
the same on an annual basis irrespective of the plant’s actual running capacity.
Naturally, if business is poor and production rates are low on a consistent or
extended basis, we can expect that measures will be taken to lower these charges
to the extent that it may be feasible (e.g., reduction in labor through layoffs or
reduction in overheads through some other belt-tightening measures), but, in
general, changes in these concepts will always be limited, short of shutting down
the plant.
Labor
Labor includes the personnel required at various skill levels to operate the unit on a
24-h basis. Since shifts usually run for 8 h, a minimum of three operators are
required to staff each position. Actually, because of holidays, vacation, leave time,
etc., the staffing requirements are considerably higher.
An average year of 365.25 days consists of 8,766 h. The basic work load per
individual at 8 h/day and 5 days/week is about 2,090 h/year, corresponding to an
752
D.S.J. Jones and P.R. Pujado ´