Question 1

Manufacturing cost — what is excluded? In compiling the manufacturing cost for a chemical company, which item below is not included in manufacturing cost?

Accepted Answer

Introduction / Context: Manufacturing cost summarizes the costs directly associated with producing the product: materials, utilities, labor, maintenance, and factory overheads. Separately, selling, general, and administrative (SG&A) costs belong to general expenses and are not part of manufacturing cost. Given Data / Assumptions: We follow a common breakdown: direct product costs + plant overhead + fixed charges = manufacturing cost. Administrative expenses are SG&A items. Concept / Approach: Direct product costs include raw materials, operating labor, utilities, and packaging. Plant overheads include supervision, maintenance, and factory services. Fixed charges may include local taxes, insurance, and depreciation associated with production. Administrative expenses (corporate salaries, office rent, legal) are not part of manufacturing cost; they are counted in general expenses and subsequently in total product cost. Step-by-Step Solution: List manufacturing cost components.Identify SG&A items as outside manufacturing.Select the excluded item: administrative expenses. Verification / Alternative check: Standard cost statements: Total product cost = manufacturing cost + general expenses. Administrative is within general expenses, confirming exclusion from manufacturing cost. Why Other Options Are Wrong: Fixed charges — included in manufacturing cost in many chemical industry breakdowns.Plant overheads — factory-level costs; included.Direct product costs — by definition included. Common Pitfalls: Mixing selling and administrative costs with plant overheads. Keep factory vs. corporate buckets separate for clean comparisons. Final Answer: Administrative expenses

Question 2

Cost of ceramic packings — identify the costliest option Among the following ceramic tower packings, which is generally the most expensive per unit of capacity installed?

Accepted Answer

Introduction / Context: Packed columns for absorption, stripping, and distillation use a variety of ceramic shapes. Cost per cubic meter depends on geometry, surface area, pressure drop, and manufacturing complexity. This question probes practical selection by relative cost of common ceramic packings. Given Data / Assumptions: All items are ceramic packings. We compare typical market prices for similar nominal sizes. Concept / Approach: Simple shapes like Raschig rings and Berl saddles are cheaper to manufacture. Advanced shapes such as Intalox saddles offer improved capacity and lower pressure drop but require more intricate molding and quality control, raising unit cost. Ceramic Pall rings (less common than metal/plastic variants) usually price between saddles and the most intricate shapes; Intalox saddles tend to be at the top of the ceramic price range. Step-by-Step Solution: Compare geometry complexity: Intalox > Pall ring > Berl saddle > Raschig ring.Relate complexity to manufacturing cost: more complex ⇒ generally higher price.Select Intalox saddles as the costliest among the listed ceramics. Verification / Alternative check: Vendor quotations and standard handbooks rank Intalox among the pricier ceramic packings, justified by hydraulic performance benefits at higher loads. Why Other Options Are Wrong: Raschig rings — simplest and usually cheapest.Berl saddles — economical versus more advanced designs.Pall rings — intermediate, often cheaper than Intalox in ceramic form. Common Pitfalls: Assuming the best hydraulic performance equals lowest cost; in reality, it often costs more and must be justified by capacity or energy savings. Final Answer: Intalox saddles

Question 3

Six-tenths rule on log–log plots — what is the slope? Using the six-tenths factor rule for scaling equipment costs with capacity, if you plot cost vs capacity on a log–log graph, what slope do you expect?

Accepted Answer

Introduction / Context: Early-stage cost estimation often relies on capacity scaling laws: Cost_2 = Cost_1 * (Capacity_2 / Capacity_1)^n. The exponent n captures economies of scale. The classic six-tenths rule sets n ≈ 0.6 for many types of process equipment. Given Data / Assumptions: Cost ∝ Capacity^n with n ≈ 0.6. Plot is log(Cost) vs log(Capacity). Concept / Approach: On a log–log plot, a power law appears as a straight line with slope equal to the exponent. Therefore, using the six-tenths factor rule, the slope equals 0.6. Deviations from 0.6 occur for specific equipment classes and time periods, but 0.6 remains a widely taught heuristic. Step-by-Step Solution: Write Cost = k * Capacity^n.Take logs: log(Cost) = log(k) + n * log(Capacity).Identify slope on log–log axes: slope = n = 0.6. Verification / Alternative check: Any two points (C1, Cap1) and (C2, Cap2) on the line satisfy n = log(C2/C1) / log(Cap2/Cap1). Using data generated with n = 0.6 reproduces the same slope. Why Other Options Are Wrong: 0.1 or 0.2 — far too low; would imply minimal economies of scale.0.8 — possible for some classes but not the six-tenths rule. Common Pitfalls: Applying n = 0.6 blindly to all equipment; always sanity-check against vendor quotes and technology specifics. Final Answer: 0.6

Question 4

Composition of total product cost in a chemical plant The total product cost of a chemical process plant is commonly defined as the sum of manufacturing cost and which of the following?

Accepted Answer

Introduction / Context: Cost roll-ups in process industries follow a standard structure so that estimates are comparable across projects and firms. After calculating manufacturing cost (direct product costs + plant overhead + fixed charges), you add general expenses to obtain total product cost. Given Data / Assumptions: Manufacturing cost is already computed. We need the other category that completes the total product cost. Concept / Approach: General expenses include administrative, distribution, and selling costs not directly tied to manufacturing operations. Overhead costs at the plant level are already inside manufacturing cost. R&D may be handled separately in corporate budgets and is not routinely added to total product cost for routine plant accounting. Step-by-Step Solution: Start with manufacturing cost (factory-related components).Add general expenses (SG&A, distribution, selling).Arrive at total product cost = manufacturing cost + general expenses. Verification / Alternative check: Standard cost statements in plant economics and handbooks show this two-bucket structure culminating in total product cost before profit and taxes. Why Other Options Are Wrong: Overhead cost — already included in manufacturing cost; not added again.R & D cost — generally outside product cost accounting for ongoing operations.None of these — incorrect because ‘‘general expenses’’ is the accepted complement. Common Pitfalls: Double-counting overheads or misclassifying selling expenses as plant overheads; maintain a consistent chart of accounts. Final Answer: general expenses

Question 5

Ownership vs. creditorship — who has more say in management? In corporate finance terms, who typically has greater say in company management decisions: a shareholder (equity holder) or a debenture holder (creditor)?

Accepted Answer

Introduction / Context: Chemical plants are financed by a mix of equity and debt. Understanding the roles of shareholders versus debenture holders clarifies who directs management and strategy and who primarily receives contractual interest payments with protective covenants. Given Data / Assumptions: Shareholders are owners with voting rights. Debenture holders are creditors with interest and principal claims. Typical corporate governance rules apply (ordinary shares vote; debentures do not). Concept / Approach: Equity confers residual ownership and, with it, voting rights for electing directors and approving major corporate actions. Debenture holders usually lack voting rights in ordinary business matters; they possess contractual protections (indentures, covenants) and can enforce remedies upon default. Hence, in day-to-day management influence, shareholders have more say than debenture holders. Step-by-Step Solution: Identify each party’s legal status: owner vs. creditor.Map rights: shareholders vote; debenture holders receive interest and rely on covenants.Conclude that shareholders have more say in management decisions. Verification / Alternative check: Company law and articles of association generally grant one-share-one-vote (subject to class differences). Debenture contracts specify rights only upon breach or special restructuring. Why Other Options Are Wrong: Less / same / no — inconsistent with standard governance where equity votes and debt does not. Common Pitfalls: Confusing protective covenants with managerial control; creditors influence terms but do not typically manage operations unless in distress. Final Answer: more

Question 6

Materials of construction for caustic storage Which is the cheapest suitable material of construction for storage tanks handling sodium hydroxide (caustic soda) solutions up to about 75% concentration under typical ambient plant conditions?

Accepted Answer

Introduction / Context: Sodium hydroxide (caustic soda) is a common bulk chemical used for neutralisation, pH control, pulping, and cleaning. Selecting a material of construction for storage tanks depends on chemical compatibility, mechanical integrity, and life-cycle cost. This question asks which common engineering metal provides the most economical service for caustic solutions up to about 75% concentration at ordinary storage temperatures. Given Data / Assumptions: Sodium hydroxide concentration ≤ 75% by mass. Storage at ambient temperatures (no unusual high-temperature service). Conventional atmospheric tanks in typical chemical plant duty. Goal: choose the cheapest suitable material, not the most corrosion-resistant premium alloy. Concept / Approach: Caustic soda is non-oxidising and generally non-aggressive to ferritic steels at ordinary temperatures; iron forms adherent magnetite in strong caustic, granting good service if chloride contamination and stress corrosion conditions are controlled. Plain carbon steel is therefore widely used for caustic storage up to high concentrations. Copper and nickel are susceptible to caustic corrosion or are unnecessarily expensive for this duty. Stainless steels can be used, but for ambient storage they add cost without proportional benefit compared with plain carbon steel. Step-by-Step Solution: Identify compatibility trends: strong caustic is compatible with carbon steel at ambient conditions.Check alternatives: copper is attacked; nickel and stainless steels are costlier choices for similar performance.Apply the economic criterion: select the least-cost material that meets service needs → plain carbon steel. Verification / Alternative check: Industry storage guidelines and vendor bulletins specify carbon steel tanks, often lined or coated only for cleanliness, for 50–75% NaOH at ambient temperatures; heating coils and stress cracking precautions apply mainly at elevated temperatures. Why Other Options Are Wrong: Stainless steel: Acceptable but significantly more expensive; typically not required for ambient caustic storage. Nickel: Premium alloy with niche use; cost is unjustified for this service. Copper: Not recommended; caustic attack occurs. Common Pitfalls: Over-specifying stainless steel by default; ignoring the effect of temperature and impurities (chlorides) on caustic stress corrosion cracking; forgetting to segregate aluminum components, which caustic attacks aggressively. Final Answer: Plain carbon steel

Question 7

Ordinary annuity in engineering economics An “ordinary annuity” (equal payments at equal intervals, compounding at a fixed rate) is directly used in the calculation of which one of the following in plant cost accounting?

Accepted Answer

Introduction / Context: In chemical engineering economics, time value of money concepts are essential for estimating equipment charges and annual costs. An ordinary annuity represents a stream of equal end-of-period payments and underpins several common costing methods. This question asks where, specifically, the ordinary annuity relationship is applied. Given Data / Assumptions: Ordinary annuity: payments occur at the end of each period. Constant interest rate i and term n periods. Standard capital-recovery factors may be used. Concept / Approach: The sinking fund method of depreciation assumes that the owner makes equal periodic deposits (an annuity) into a fund that accumulates with interest to replace the asset at the end of its life. The required deposit A is obtained from the future worth S using the uniform series sinking fund factor: A = S * i / ((1 + i)^n − 1). Thus, the ordinary annuity structure is fundamental to this depreciation approach. Step-by-Step Solution: Recognize the sinking fund method uses equal periodic payments into an interest-bearing fund.Relate equal payments to the ordinary annuity model.Conclude that the correct application is depreciation by the sinking fund method. Verification / Alternative check: Textbook factor tables list the sinking fund factor alongside present/future worth and capital recovery factors, all derived from annuity relations. Why Other Options Are Wrong: Manufacturing cost: A composite of materials, labor, overhead; not derived directly from annuity math. Discrete compound interest: A single future value from a single present value, not an annuity series. Cash ratio: A liquidity metric from the balance sheet, unrelated to annuity factors. Common Pitfalls: Confusing capital recovery (which also uses annuity math) with depreciation methods; the question explicitly asks for “ordinary annuity” use and lists the sinking fund depreciation method. Final Answer: Depreciation by sinking fund method

Question 8

Classifying R&D cost in total product cost While estimating the total product cost for a chemical plant, expenditure on research and development (R&D) is categorized under which heading?

Accepted Answer

Introduction / Context: Total product cost classifications help estimate annual manufacturing cost and selling price. Understanding where to place research and development expenditures ensures consistency in cost reports and comparability across projects and plants. Given Data / Assumptions: Standard chemical engineering cost breakdowns are used. R&D here refers to ongoing technical development and support connected with products and processes. We consider annual accounting, not capitalized R&D for special cases. Concept / Approach: Cost handbooks typically group R&D together with administrative, distribution, and selling expenses under “general expenses”. These are not direct production costs tied to unit throughput, nor are they fixed capital-related charges; rather they are period costs incurred to support business operations and future products. Step-by-Step Solution: List standard categories: direct production, fixed charges, plant overhead, general expenses.Place R&D with general/selling/administrative categories per common practice.Select “General expenses.” Verification / Alternative check: Classic references (chemical process design texts) show R&D under general expenses when computing total product cost. Why Other Options Are Wrong: Overhead cost: Usually plant overhead tied to production facilities, not R&D. Fixed expenses: Include taxes, insurance, depreciation; not R&D. Direct production cost: Includes raw materials, utilities, direct labor; not R&D. Common Pitfalls: Capitalizing R&D universally; in many product-cost estimates, routine R&D is treated as a period general expense. Final Answer: General expenses

Question 9

Gantt (Bar) charts in production planning A Gantt chart—also called a bar chart—is most directly helpful for which activity in plant operations management?

Accepted Answer

Introduction / Context: Gantt charts (bar charts) are foundational tools in project and production management. They display tasks against time, showing planned start/finish dates and overlaps, and they are widely used to coordinate manufacturing operations and maintenance shutdowns. Given Data / Assumptions: We focus on the primary, textbook use of a Gantt chart. Plant operations require scheduling, dispatching, resource planning, and inventory management. Concept / Approach: Gantt charts map tasks to a time axis and thereby schedule activities. They communicate when each job should begin, how long it should take, and when it should end. While better scheduling improves resource utilization and affects dispatching indirectly, the core function is production scheduling and tracking progress versus plan. Step-by-Step Solution: Identify the essential function: visual time-phased task plan.Match to the listed activities.Select “Preparing production schedule.” Verification / Alternative check: Operations texts classify Gantt/bar charts under scheduling and control tools, often contrasted with PERT/CPM for network logic and critical path analysis. Why Other Options Are Wrong: Utilisation of manpower/machines: Benefited by good schedules but not the direct function. Despatching products: A logistics function downstream of scheduling. Inventory control: Handled by MRP/EOQ/ROP systems rather than bar charts. Common Pitfalls: Confusing the primary use (scheduling) with secondary benefits (better utilisation, fewer delays). Final Answer: Preparing production schedule

Question 10

Present worth from a known future amount If S is the amount available after n interest periods from principal P at a discrete compound interest rate i, what is the correct formula for the present worth of S?

Accepted Answer

Introduction / Context: Discounting a future amount back to present worth is a core step in process economic evaluations such as net present value and profitability analysis. Correctly applying compound interest is essential to avoid under- or over-valuing future cash flows. Given Data / Assumptions: Discrete compounding at interest rate i per period. Future amount S is realized at the end of n periods. No interim payments between 0 and n. Concept / Approach: The present worth relation for single-payment compound interest is: S = P * (1 + i)^n. Rearranging for P yields P = S / (1 + i)^n. This is the standard present worth factor applied to discount a single future sum to time zero. Step-by-Step Solution: Write S = P * (1 + i)^n.Solve for P: P = S / (1 + i)^n.Select the option matching this expression. Verification / Alternative check: Finance tables list the present worth factor (P/F, i, n) = 1 / (1 + i)^n; multiplying by S gives P. Why Other Options Are Wrong: (1 + i)^n / S: Inverted; not a monetary amount. S / (1 + i n): Uses simple interest, not compound interest. S / (1 + n) i: Algebraically incorrect and dimensionally inconsistent. Common Pitfalls: Confusing simple with compound interest; neglecting that discounting must mirror the compounding convention used to grow the amount. Final Answer: S / (1 + i)^n

Question 11

Choosing the number of effects in evaporation In a multiple-effect evaporator, the optimum number of effects is primarily decided on the basis of what criterion?

Accepted Answer

Introduction / Context: Multiple-effect evaporation improves steam economy by reusing vapor as heating medium in downstream effects. However, each additional effect increases capital cost and complexity. Engineers must therefore select an optimum number of effects balancing capital and operating costs. Given Data / Assumptions: Conventional forward or backward feed arrangement. Steady operation; no exotic heat recovery beyond the effects. Goal is “optimum,” not merely feasible or maximum possible. Concept / Approach: Adding effects increases steam economy but with diminishing returns. The optimum number minimizes total annual cost = annualized capital charges + operating (steam, power, maintenance) costs. While temperature driving force (terminal parameters) sets a practical upper bound and capacity requirements size equipment, the choice of how many effects to install is an economic (cost–benefit) decision. Step-by-Step Solution: Recognize tradeoff: higher economy vs higher capital.Define objective: minimize total annualized cost.Therefore, select “Cost benefit analysis.” Verification / Alternative check: Design handbooks present plots of annual cost vs number of effects showing a shallow minimum at the economic optimum. Why Other Options Are Wrong: Floor area availability: A constraint, not the economic decision basis. Terminal parameters: Determine feasibility and temperature profiles but do not alone set the optimum. Capacity required: Influences equipment size, not the number of effects per se. Common Pitfalls: Equating the “maximum feasible effects” with the “economic optimum”; ignoring the annualization of capital when comparing steam savings. Final Answer: Cost benefit analysis

Question 12

Startup cost allowance in fixed-capital planning As a rule of thumb in chemical plant estimating, the maximum production start-up cost to bring a new plant on-stream is approximately what percent of the fixed capital cost?

Accepted Answer

Introduction / Context: Bringing a new process unit into operation requires pre-commissioning, operator training, initial off-spec production, extra utilities, and consumables. Estimators often include a provisional allowance for “production start-up cost” as a fraction of fixed capital when detailed data are unavailable. Given Data / Assumptions: Fixed capital cost is already established. Typical commodity chemical plant under normal complexity. Seeking a common rule-of-thumb maximum allowance figure. Concept / Approach: Textbook heuristics commonly cite a start-up allowance in the range of about 3–5% of fixed capital cost for conventional plants, occasionally higher for complex facilities. Using the conservative “maximum of typical” values, 5% is widely used in screening estimates. Step-by-Step Solution: Recall standard estimating ranges for start-up costs.Select the upper representative value used in many preliminary estimates.Answer: 5 percent of fixed capital cost. Verification / Alternative check: Comparisons with historical project closeouts show start-up costs clustering in low single-digit percentages of fixed capital for typical chemical units. Why Other Options Are Wrong: 1%: Often too low, risks under-provisioning for training/commissioning. 10% or 30%: Excessive for ordinary plants; such high allowances imply unusual complexity or major schedule/capability risks. Common Pitfalls: Confusing start-up cost with working capital; ignoring that specialty or first-of-a-kind plants may require larger allowances than standard heuristics. Final Answer: 5

Question 13

Piping cost fraction in fluid-processing units For a fluid-processing section such as distillation, the installed cost of process piping is roughly what percent of fixed capital investment (FCI)?

Accepted Answer

Introduction / Context: Cost distribution within a plant varies with process type. Fluid-processing units (distillation, absorption, extraction) tend to require extensive piping, valves, and instrumentation, increasing the piping fraction of fixed capital compared with solids-handling plants. Given Data / Assumptions: Typical refinery/chemical fluid-processing unit. Installed piping cost as a percentage of FCI. Screening-level estimating, not a detailed take-off. Concept / Approach: Rules of thumb place piping in fluid plants in the ~15–25% range of FCI, depending on complexity and pressure rating. A mid-range representative value is about 22%, which aligns with many textbook tabulations for fluid services with moderate complexity. Step-by-Step Solution: Identify process type: fluid handling with significant interconnection.Recall typical piping fractions used in conceptual estimates.Select the representative value: 22% of FCI. Verification / Alternative check: Historic plant summaries and estimating manuals show higher piping fractions for fluid services relative to solids plants (often <10%). Why Other Options Are Wrong: 4% or 13%: More typical of solids handling or very simple services; low for complex fluid units. 34%: High for average units; may occur in exceptional high-pressure or highly integrated plants but not as a typical figure. Common Pitfalls: Applying a single fraction across all units; pressure class, metallurgy, and layout congestion can shift piping percentages materially. Final Answer: 22

Question 14

Working capital from the balance sheet Which quantity can be obtained directly from a company’s balance sheet as the difference between current assets and current liabilities?

Accepted Answer

Introduction / Context: Liquidity and short-term financial health are crucial for sustaining operations, purchasing feedstocks, and absorbing start-up fluctuations. Several related metrics can be computed from the balance sheet, but only one is explicitly the difference between current assets and current liabilities. Given Data / Assumptions: Standard accounting definitions apply. “Current” means convertible into cash or due within one year. Concept / Approach: Net working capital (NWC) is defined as current assets minus current liabilities. It estimates the cushion available to meet short-term obligations and carry inventories/receivables. Ratios such as the current ratio or cash ratio use quotients of these balances, not differences, and “liquid assets” is not a standard line equal to the difference. Step-by-Step Solution: Recall the definition: NWC = Current assets − Current liabilities.Identify which option matches that difference exactly.Select “Net working capital.” Verification / Alternative check: Finance texts define working capital and discuss its role in project cash-flow planning, particularly during ramp-up and seasonal swings. Why Other Options Are Wrong: Cash ratio: Cash and equivalents divided by current liabilities. Current ratio: Current assets divided by current liabilities. Liquid assets: A category of assets, not the difference. Common Pitfalls: Confusing “working capital” with “cash on hand”; NWC includes receivables and inventories as well. Final Answer: Net working capital

Question 15

Basic accounting identities for plant finances Which of the following relationships is invalid in standard financial accounting for a chemical plant?

Accepted Answer

Introduction / Context: Financial identities connect the balance sheet and income statement. Engineers using economic analyses should recognize correct relationships to avoid misinterpretation of project performance and company health. Given Data / Assumptions: Standard accounting conventions: “equities” = liabilities + owners’ equity (net worth). “Capital” is not a complete synonym for total equities unless explicitly defined that way in a specific context. Concept / Approach: The fundamental balance-sheet identity is: Assets = Liabilities + Owners’ Equity. This is sometimes stated as Assets = Equities (where Equities encompasses both creditors and owners). On the income statement, Total income = Costs + Profits is equivalent to Profit = Income − Costs. However, “Assets = capital” is not a general identity; capital can mean owners’ equity only, paid-in capital, or fixed capital, none of which necessarily equals total assets. Step-by-Step Solution: Confirm valid identities: Assets = Liabilities + Net worth; Total income = Costs + Profits.Recognize “equities” as bookkeeping sum of liabilities and equity → equals assets.Identify the mismatch: “Assets = capital” is undefined/incorrect in general usage. Verification / Alternative check: Any introductory accounting text presents the basic equation and clarifies terminology for equity versus assets. Why Other Options Are Wrong (i.e., they are valid): Assets = equities: True by definition if equities include both liabilities and net worth. Assets = liabilities + net worth: The fundamental balance-sheet identity. Total income = costs + profits: Algebraic rearrangement of profit definition. Common Pitfalls: Using “capital” ambiguously to mean fixed assets, owners’ equity, or total investment; clarity of definitions is essential. Final Answer: Assets = capital

Question 16

In discounted cash flow (DCF) analysis for chemical engineering projects, how does increasing the assumed DCF rate of return (i.e., the discount rate) affect the ratio of total present value (PV of all future net cash flows) to the initial investmen…

Accepted Answer

Introduction / Context: Discounted cash flow (DCF) analysis converts future cash flows into their present worth using a discount rate. This question checks your understanding of how the chosen discount rate influences the attractiveness of a project, specifically the ratio: total present value (sum of discounted net cash inflows) divided by the initial investment amount. Given Data / Assumptions: Initial investment occurs at time zero. Future net cash inflows occur at positive times (t > 0). Discount rate r is used to compute present value: PV = Σ (Cash_t / (1 + r)^t). Project risk and timing remain the same while r varies. Concept / Approach: Present value decreases as the discount rate increases because each future cash flow is divided by a larger compounding factor. Therefore, the sum of discounted cash flows falls. Since the initial investment is a fixed denominator, the ratio PV / Initial Investment declines as r rises. This is the same monotonic behavior seen in net present value (NPV) vs. discount rate graphs and is consistent with the definition of the internal rate of return where NPV crosses zero. Step-by-Step Solution: Write PV(r) = Σ Cash_t / (1 + r)^t for t = 1 to n.Increase r to r + Δr with Δr > 0.Each term Cash_t / (1 + r + Δr)^t becomes smaller than Cash_t / (1 + r)^t.Hence PV(r + Δr) < PV(r) and PV(r + Δr) / Initial Investment also decreases. Verification / Alternative check: Plot NPV(r). The curve slopes downward with r. Since PV/Initial Investment = (NPV + Initial Investment)/Initial Investment, it also trends downward with r, confirming the conclusion. Why Other Options Are Wrong: Increases / Increases linearly: Contradicts discounting; higher r reduces present value.Remains constant: Impossible unless all future cash flows are zero. Common Pitfalls: Confusing nominal and real rates; the monotonic decrease holds for either as long as the rate increases. Assuming proportional (linear) behavior; the relationship is nonlinear due to compounding. Final Answer: decreases

Question 17

In plant economics and cost accounting for process industries, the effluent treatment cost (for treating liquid/solid waste streams before discharge) is typically classified under which cost category?

Accepted Answer

Introduction / Context: Effluent treatment is an essential part of chemical plant operations due to environmental compliance and regulatory discharge limits. Correctly classifying effluent treatment costs improves budgeting, cost control, and product costing accuracy. This question asks where those costs typically sit in standard cost breakdowns used in chemical engineering economics. Given Data / Assumptions: Effluent treatment involves operating an ETP (Effluent Treatment Plant) including chemicals, labor, maintenance, and utilities. The ETP supports multiple production lines (a common service). We are classifying routine operating costs, not the capital expenditure to build the ETP. Concept / Approach: In most plants, effluent treatment is a service function supporting operations broadly rather than a direct production activity for a single product line. Such shared service costs are grouped as factory overheads (also called indirect manufacturing costs), which may later be allocated to products via appropriate drivers (flow, load, or volume). Capital to construct the ETP would be a fixed capital investment; power and steam consumed are utilities, but the aggregate cost category for the ETP operation is generally recorded as overhead in cost accounting structures. Step-by-Step Solution: Identify the nature of the expense: recurring, service-wide, and indirect.Recognize accounting treatment: indirect manufacturing cost = overhead.Assign effluent treatment running cost to overhead for allocation. Verification / Alternative check: Company charts of accounts and standard cost roll-ups typically list ETP chemicals, sludge disposal, operator wages, and maintenance under factory overheads, later burdened to cost centers or products. Why Other Options Are Wrong: Fixed: Fixed costs are time-based and not necessarily service expenses; ETP operating cost varies with load.Utilities: Utilities are specific inputs (power, water, steam). ETP consumes utilities, but the total ETP cost classification is broader.Capital: Capital refers to the initial investment, not periodic operating expenses. Common Pitfalls: Confusing the ETP’s power bill (a utility item) with the full ETP operating cost category. Mixing capital cost of building the ETP with its ongoing operational overheads. Final Answer: overhead

Question 18

In financial statements used by chemical companies, which of the following is not considered a current asset (i.e., not expected to be converted to cash within one operating cycle)?

Accepted Answer

Introduction / Context: Classifying assets correctly is essential for liquidity analysis and working capital management in process industries. Current assets typically convert to cash within one operating cycle (often one year), while non-current (fixed) assets are used over several years to produce goods and services. Given Data / Assumptions: Operating cycle is approximately one year. We consider typical line items on a chemical company’s balance sheet. Equipment refers to long-lived plant items like reactors, heat exchangers, and pumps. Concept / Approach: Current assets include cash and near-cash items: inventories (raw materials, WIP, finished goods) and marketable securities. These are expected to be sold, used, or converted into cash within the operating cycle. In contrast, plant equipment provides productive capacity for many years and is capitalized and depreciated; hence it is a fixed asset (property, plant, and equipment), not a current asset. Step-by-Step Solution: Identify items commonly classified as current assets: inventories and marketable securities qualify.Recognize the nature of chemical equipment: long-lived, depreciated, not intended for sale in normal operations.Therefore, “Chemical equipments” is not a current asset. Verification / Alternative check: Review of standard accounting practice shows equipment listed under property, plant, and equipment (PP&E) on the balance sheet and not within working capital items. Why Other Options Are Wrong: Inventories: Current asset by definition.Marketable securities: Short-term investments easily convertible to cash.None of these: Incorrect because there is a valid non-current choice. Common Pitfalls: Confusing spare parts inventory (current asset) with installed equipment (fixed asset). Assuming high value implies non-current; it is the liquidity, not ticket size, that matters. Final Answer: Chemical equipments

Question 19

Break-even and margin terminology in plant economics: select the incorrect statement from the following commonly used relationships and definitions.

Accepted Answer

Introduction / Context: Understanding basic profitability terms—gross margin, net sales realisation (NSR), break-even point, and net profit—is vital for decision-making in chemical plants. This question asks you to spot the incorrect statement among several commonly cited relationships. Given Data / Assumptions: Break-even point is defined where total revenues equal total costs. Conventional cost classifications are used (manufacturing costs, selling expenses, depreciation, interest). Relationships are simplified to standard teaching definitions used in introductory plant economics. Concept / Approach: At the break-even point, revenue exactly equals total cost (no profit, no loss). Therefore, NSR equals total production cost at break-even—not more than it. Any statement implying revenue exceeds total cost at break-even is incorrect by definition. Step-by-Step Solution: Recall break-even definition: NSR = Total production cost at B.E.P.Option (c) claims NSR is more than total production cost at B.E.P., which contradicts the definition.Hence, (c) is the incorrect statement asked for. Verification / Alternative check: A standard break-even chart shows the revenue line intersecting the total cost line at B.E.P., where profit = 0. Immediately to the right of this point profit becomes positive, and to the left, negative. Why Other Options Are Wrong: (a) Interprets gross margin broadly as the net of revenues and expenditures; while textbook definitions often use “sales minus cost of goods sold,” this broad phrasing can be consistent in simplified contexts.(b) NSR is commonly taken as gross sales minus selling-related deductions; acceptable for teaching purposes.(d) A simplified profitability identity often used in instructional problems (taxes may be omitted for simplicity). Common Pitfalls: Confusing break-even with target-profit points. Applying a company’s detailed chart of accounts to simplified textbook identities and calling them “wrong.” Final Answer: At break-even point, NSR is more than the total production cost

Question 20

Profitability evaluation methods for chemical process plants: identify the option that is not considered a mathematical (quantitative) method for assessing project profitability.

Accepted Answer

Introduction / Context: When screening and ranking projects, engineers rely on quantitative methods that use time value of money and cash flow models. This question distinguishes recognized mathematical methods from items that are more policy or accounting balances rather than evaluation techniques. Given Data / Assumptions: Projects have defined cash inflows and outflows over time. Standard plant economics methods apply (ROI, payout period, DCF). “Cash reserve” refers to a balance held for liquidity or contingencies, not a performance metric. Concept / Approach: Mathematical evaluation methods include: rate of return on investment (ROI), payout period (or payback time), and discounted cash flow (e.g., net present value over full life). These rely on formulas and cash flow timing. A cash reserve is an internal fund or buffer and not an evaluation method for profitability. Step-by-Step Solution: List recognized methods: ROI, payout period, DCF are all quantitative metrics.Identify outlier: “Cash reserve” is a balance or policy choice, not a profitability measure.Therefore, the correct selection is “Cash reserve.” Verification / Alternative check: Textbook tables of evaluation methods include NPV, IRR, DPB, ROI. None list “cash reserve” as an evaluation criterion for profitability; it affects risk and liquidity, not profitability computation. Why Other Options Are Wrong: Rate of return on investment: Core profitability metric.Payout period: Time-based metric of investment recovery.Discounted cash flow: Rigorous method accounting for time value of money. Common Pitfalls: Confusing risk buffers (reserves) with profitability metrics. Ignoring the time value of money when evaluating long-life assets. Final Answer: Cash reserve.

Chemical Engineering Plant Economics Questions