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Costing of Paracetamol 500mg Tablets

The Costing of Paracetamol 500mg Tablets is applicable for the batch size of 150,000 tablets. Each component of the cost is explained below.

Raw Material Costs
  • Each tablet of paracetamol is 500 mg. Therefore for a batch size of 150,000 tablets, we would require 75kg of paracetamol. 

The calculation is as follows:
  • The rate of paracetamol is quoted as 149, which means the cost is Rs 149 per kg + Excise Duty (16 %) + Central Sales Tax (4 %). This works out to Rs 179.75 per kg.
  • The effective cost for 75kg is Rs 179.75 / kg x 75kg = Rs 13481.25 say Rs 13480.

Cost of Excipients
  • The quantities of excipients needed for a batch of paracetamol tablets are shown below.
  • The quantities multiplied by their rates will give us the cost of excipients.

  • Therefore the total cost of excipients is Rs 1015.95. Let us say Rs 1016.

Manufacturing Costs

1. Labour Cost
  • This is calculated based on the number of person-days required to manufacture a batch, i.e., the summation of the number of persons required for each operation multiplied by the time required for that operation overall operations.
  • For example, the granulation process usually takes half a day per batch with two persons involved.
  • Sieving, comminuting, and lubrication usually take half a day per batch and involve two persons.
  • Time taken for tablet compression is machine and tablet related. There are fast machines, and slow machines and the selection of a particular machine is dependent on the nature, size, and shape of the tablet is manufactured. 
  • A batch of paracetamol of 150,000 tablets takes a day and a half (this includes setting up the machine and cleaning after the batch is processed) and one operator is needed to run the machine.
  • Packing is labor intensive for strip packing. For a batch of 150,000 tablets, approximately 6 people are needed for 4 hours for packing the strips in cartons. Another two are required to run the machine for one and a half days.
  • Bulk packing of 150,000 tablets of paracetamol would need 4 persons for half a day.
  • The costing shown above is for bulk packing of tablets. So the total labor cost would be –
  • 2 x 0.5 + 2 x 0.5 + 1 x 1.5 + 4 x 0.5 = 5.5 person days so let us say 6 person, days per batch. 
  • If we assume a rate of Rs 200 per person per day labor cost would work out to Rs 1200 per batch.

2. Electricity Costs
  • Each tablet goes through certain manufacturing operations. Some of the common ones are:
  • Mixing, Granulation, Drying, Sieving and Comminuting, Tabletting, Packing, Coating (in case of coated tablets).
  • All tablets do not go through all these operations. The operations are chosen depending upon the nature of the material being tabletted. One particular machine and sometimes two machines do each operation.
  • To calculate the electricity cost for each operation one considers the time taken for each operation, the machine used, and the electric power required to run that machine. The average cost of electricity per month is calculated. The average number of hours each machine runs in a month is also determined based on historical data. These two data sets will give us the cost of running each machine per hour. This is then used to determine the electricity cost for each batch depending on the machines used.

We have calculated:
  1. mixing + granulation + comminuting/sieving + drying costs Rs 1100 per batch
  2. Tableting costs Rs 275 of electricity per 100,000 tablets.
  3. The electricity costs for bulk packing of tablets are negligible. i.e., for 150,000 tablets the cost is Rs 1100 + Rs 275 x 1.5 = Rs 1512.50, say, Rs 1500.

3. Packing Material Cost
  • Most of our products are bulk packed so we have shown the costs for bulk packing.
  • The jar we pack paracetamol tablets costs us Rs 7.50 per jar. Therefore for 150 jars, the cost is Rs 150 x 7.50 = Rs 1125.
  • The cost of labels is Rs 0.25 x 300 = Rs 75
  • The approximate cost of the PP (polypropylene) bags used for packing is Rs 50.
  • Thus the total packing cost is Rs 1125 + 75 + 50 = Rs 1250.

4. Testing Charges
  • This includes the total quality control lab expenses, i.e., chemicals, consumable materials, salary of staff, etc. This is an average cost of the total expenses for the year divided by the number of finished goods batches tested. Though the tests include raw materials tested, excipients tested, in-process tests, and the finished goods tested, the cost is allocated only to the finished goods.
  • On average, the testing per batch of finished goods costs Rs 1500 per batch.

5. Total Cost
  • The total cost is the sum of the Raw Material Cost and the Manufacturing Costs, i.e., Rs 14496 + Rs 5450 = Rs 19946
  • To calculate the total cost per 1000 tablets we divide the total cost by the batch size and also factor in the production losses. In this case, the production losses are 2 % and therefore the total cost would increase to that extent.
  • Therefore the cost per 1000 tablets is
  • That is for a raw material cost of Rs 96.64, the value added is Rs 135.70. This is approximately the value added for all (uncoated) tablets and can be used as a thumb rule to calculate ex-factory costs of various items.

6. Assessable Value
  • The assessable value is the net realizable value. Net realizable value is decided by how much we want to price it at the first point of sale (to the wholesaler usually). This includes the margin, a polite word for gross profit.

7. Excise Duty
Excise Duty is calculated on the assessable value. It is usually 16% but small-scale industries have a concessional rate of 9.6 % up to a sale of Rs 1 crore after which they have to pay 16%.
In the case of excise duty if you see it does not work out to either 16% or 9.6% because excise duty is paid only on the value added. That is, excise duty paid for all the inputs can be subtracted from the total excise duty payable, and hence the figure is lower.
Hence, the selling price works out to Rs 188.64, i.e., say Rs 190 per 1000 tablets for bulk packing.

MRP for 1000 Tablets including profit becomes Rs 234.

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  1. Nice work on costing. Can you share me formulated xcel sheet?