The raw material consumption and the conversion cost are the two elements that establish the manufacturing cost for a particular fine chemical. The former is determined primarily by the unit consumption and the purchasing cost of the materials used; the latter, by the throughput in kilograms per day in a given production bay. A precise calculation of the conversion cost is a demanding task. Different products with widely differing throughputs are produced in campaigns in multipurpose plants, occupying the equipment to different extents. Therefore, both the production capacity and the equipment utilization for a specific fine chemical are difficult to determine. Moreover, cost elements such as labor, capital, utilities, maintenance, waste disposal, and quality control cannot be allocated unambiguously.
An approximative calculation can be done by an experienced process development or pilot plant chemist on the basis of (1) the laboratory synthesis procedure and (2) by breaking down the process into unit operations, the standard costs of which have been determined previously Controlling has to be involved for a more in-depth costing.. The problems it has to address are how to fairly allocate costs for production capacity, which is not used. This can be due to the fact that part of a production bay is idle, because of lack of demand or because, e.g., a reactor is not required for a particular process.
Manufacturing costs usually are reported on a per kilogram product basis. For the purpose of benchmarking (both internal and external), the volume x time / output (VTO), as mentioned above, is a useful aid.
An indicative cost structure for a fine chemical company is shown in Table 10. Nowadays, a full 7-day/week operation, consisting of four or five shift teams, each working 8h per day, has become the standard. In terms of production costs, this is the most advantageous scheme. Higher salaries for night work are more than offset by better fixed cost absorption. As part of the budgeting process, standard costs for a production campaign of a particular fine chemical are determined on the basis of past experience. The actual results of the campaign are then compared with the standard. The capability of a fine chemical company to make dependable manufacturing cost forecasts is a distinct competitive advantage.