WASHING POWDER

PRODUCTION AND COST

CONCEPT
 PRODUCTION CONCEPT

IN THE production process,firms turn inputs into output.Inputs include factors of

production ie. Land,labour,capital and materials.

PRODUCTION TECHNOLOGY
Standard detergent powder manufacturing plant consists of mixing, drying,
after drying, packing and antipollution units
PRODUCTION FUNCTION

A production function shows the highest output that a firm can produce for every
combination of inputs.

q=F(K,L)
 Production function assumptions.
• Perfect divisibility of both inputs and outputs.
• There are two factors of production-labor and
capital.
• Limited substitution of one factor for the
other
• A given technology.
• Inelastic supply of fixe factors in the short run.
 There are two types of
production functions
1.short-term production function.
2.long-term production function.
PRODUCTION WITH ONE VARIABLE INPUT (LABOUR)
OR SHORT TERM PRODUCTION FUNCTION

AMT. OF AMT. OF TOTAL AVERAGE MARGINAL

LABOUR(L) CAPITA (C) OUTPUT PRODUCT PRODUCT

47 2799700 2809899 59785 -

49 2799700 2819692 57548 9793
51 2799700 3639615 71365 819923
53 2799700 3819292 72062 179677

55 2799700 4080000 74182 260708

57 2799700 4080000 71579 0
59 2799700 3819292 64734 -260708
61 2799700 3526773 57816 -292519
63 2799700 3214169 51019 -312604
5000000

4000000

3000000
TC
2000000 AC
MC
1000000

0
47 49 51 53 55 57 59 61 63
-1000000
 PRODUCTION WITH TWO VARIABLES
OR LONG TERM PRODUCTION FUNCTION
• Production with two variable input is observed
in long run where both labor and capital are
variables.
CAPITAL AND LABOR IN LONG RUN

CAPITAL NO. OF
IN ‘000 RS LABOR
46 48 51 53 55

66175 3044050 3176400 3374925 35072575 3639615

68672 3158912 3296256 3502272 3639615 3776960

71365 3282790 3425520 3639615 3782345 3939925

75825 3487950 3639615 3867075 4018725 4170375

79122 3639615 3797856 4035222 4193466 4351710

GRAPHICAL REPRESENTATION
Cost Concept:
• It is used for analyzing the cost of a
project in short and long run.
Types of Cost:
• Total fixed costs (TFC)
• Average fixed costs (AFC)
• Total variable costs (TVC)
• Average variable cost (AVC)
• Total cost (TC)
• Average total cost (ATC)
• Marginal cost (MC)
Fixed Costs(FC)
Fixed Cost denotes the costs which do not vary
with the level of production. FC is
independent of output.
Eg: Depreciation, Interest Rate, Rent, Taxes

• Total fixed cost (TFC):

All costs associated with the fixed input.

• Average fixed cost per unit of output:

AFC = TFC /Output
Variable Costs(VC)

Variable Costs is the rest of total cost, the part that

varies as you produce more or less. It depends
on Output.
Eg: Increase of output with labour.

• Total variable cost (TVC):

All costs associated with the variable
input.
• Average variable cost- cost per unit of output:
AVC = TVC/ Output
Total costs(TC)
The sum of total fixed costs and total
variable costs:

TC = TFC + TVC

Average Total Cost

Average total cost per unit of output:

ATC =AFC + AVC

ATC = TC/ Output
Sr.
No. Description Qty Unit Price
VC FC TC
1 Alkyl benzene sulphonic acid 720 22,968 2,480,544 14,056,416 16,536,960
2 Sodium tripolyphosphate 900 19,920 2,689,200 15,238,800 17,928,000
3 Sodium sulphate 540 2,280 184,680 1,046,520 1,231,200
4 Sodium silicate 660 11,364 1,125,036 6,375,204 7,500,240
Caustic soda 120 5,232 627,840 - 627,840
5 Printed polyethylene bags,
(250g det. Powder) 12 million 0.1 1,200,000 - 1,200,000
Grand Total 8,307,300 36,716,940 45,024240
Typical Total Cost Curves

• TVC,TC is always increasing:

– First at a decreasing rate.
– Then at an increasing rate
Marginal Costs

• The additional cost incurred from

producing an additional unit of output:

MC =  TC
 Output
MC =  TVC
 Output
Typical Average & Marginal Cost
Curves
Long Run Cost Curve

Economies of scale Diseconomies of scale

M

M-optimum level of production

 UTILITIES REQUIREMENT AND COST

Sr. No. Description Quantity Unit Price Total Cost

1 Electricity (kWh) 100,000 0.4736 47,360
2 Water (m3) 30,000 5.50 165,000
3 Furnace oil (lt.) 80,000 5.41 432,800
Grand Total 645,160
MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
The plant requires 51 workers, and their annual expenditure,
including fringe benefits, is estimated at Birr 539,250.

B. TRAINING REQUIREMENT
There is already sufficient experience in the country in
manufacturing detergent powder. On site training programme is,
therefore, believed to be adequate for key production,
maintenance and quality control personnel by the experts of
machinery and technology supplier during commissioning and
performance testing period. The total cost of training is estimated
at Birr 30,000.
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST Sr.
No. Description Req. No. Salary, (Birr)
Monthly Annual
1 Plant manager 1 2,000 24,000
2 Secretary 2 1,800 21,600
3 Production and 1 1,800 21,600
technical manager
4 Finance and adm 1 1,800 21,600
manager
5 Commercial manager 1 1,600 19,200
6 Accountant 2 2,400 28,800
7 Sales person 1 1,200 14,400
8 Purchaser 1 1,200 14,400
THANK YOU