Fixed Operating Expenses

These expenses include depreciation and plant indirect expenses such as property taxes, insurance, fire protection. All these items are expressed as a fraction of the equipment cost or the fixed capital investment. The fixed capital investment represents the total money spent to purchase equipment and place it in operation. It is customary to include the return on investment on an after-tax basis using the federal rate but occasionally state and local taxes may also be included in the expression for the fixed expenses. Table 13.3 is a checklist of these items. To simplify the mathematics, annual expenses are considered to be constant, therefore; depreciation is calculated on a straight-line basis.

To estimate the total fixed capital investment, the Hand, Wroth, or Brown methods suffice for economic balances since most are of a preliminary nature.

As a general rule, variable operating expenses decrease with increasing equipment size while fixed expenses increase with increasing size, as shown in Figure 13.1.

Table 13.3 Checklist of Fixed Capital Items

Delivered equipment costs

Equipment installation

Automatic control equipment

Installation of automatic control equipment

Piping and ductwork

Insulation

Electrical equipment and installation Auxiliary equipment

Engineering costs association with equipment installation

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