assignment 4_perancangan produk

CHAPTER 2

ECONOMICAL ASPECT ANALYSIS

2.1 Background

Our product, CiaoBellaTM

, is manufactured in Purbajaya Industrial Estate,

Cibinong, Bogor, West Java. With total area of 600 m2, the plant is intended to

produce about 8,467 CiaoBellaTM

per day. To achieve this production target, our

plant operates 24 hours/day from Monday to Sunday (7 working days) with 3

shifts working time.

A product needs to be good not only in technical aspect but in economical

aspect as well. Because the motivation behind starting a business or establish a

plant is of course to gain profit. Therefore, an accurate economic analysis needs to

be done before build a plant and manufacture a product to see whether it is

economically feasible or not. In the economic analysis, all costs which may affect

the selling price of a product should be taken into consideration. The selling price

of the product includes desired profit and taxes are determined as well.

Component costs are the factors which influence the price of the product the most.

There are two types of costs contained in component costs, fixed costs and

operating costs. Fixed costs are costs that are not influenced by the amount of

production and tend to be the same each year, such as marketing expenses

(advertising and promotion), administrative costs, indirect employee salaries

(indirect labor), as well as other costs that affect the price of the product

(insurance, taxes, depreciation). While operating costs are costs that will change

depending on the amount of production or needs, such as purchase of materials or

cost of raw materials and employee salaries (direct labor).

2.2 Total Capital Investment Cost (CTCI)

Total Capital Investment (TCI) or invested capital is all costs that are

needed to design, to build and to start the production. In another words, TCI

represents the total amount of cash needed to begin a product manufacture. TCI

consists of fixed capital cost and working capital cost. The source of fund for TCI

can be obtained from the investor, banks loan or self-raised. TCI itself can be

calculated by several methods. The method that we use to calculate TCI here is

Guthrie method. Some data and assumptions below are used in the upcoming

section and subchapter to help us analyze the economical aspect.

1 US$ = Rp 12,876.00 (www.bi.go.id, accessed on April 24th, 2015).

Some equipments have salvage value.

CiaoBellaTM plant will operate 24 hours each day, through 335 days of

work in one year.

Our plant rearrangement and equipment installation process will be

finished in 3 months (October until December 2015). So our production

process can be started in the beginning of 2016.

The service life of PT CiaoBella Cantika Nusantara (n) is 10 years.

Depreciation will be conducted using declining balance method.

The Guthrie method to calculate Total Capital Investment (TCI) is shown

in Equation (2.1) below.

(2.1)

Where,

(2.2)

(2.3)

Therefore, we need to calculate fixed capital and working capital cost first in

order to get the TCIs value.

2.2.1 Fixed Capital Cost

Fixed capital cost in our company, PT CiaoBella Cantika Nusantara, is

consist of main equipment cost, plant rearrangement and modification cost, offsite

facilities cost, market research cost, and other costs such for patent & branding.

All will be described more detailed below one by one. Fixed capital then can be

calculated by using Equation (2.2) and Equation (2.3), explained earlier.

2.2.1.1 Main Equipment Cost

All the costs that are used to buy main equipments required in the

production process of PT CiaoBella Cantika Nusantara will be discussed in this

section. The cost of an equipment is depend on the type, characteristic, capacity,

size or dimesion, as well as brand/country of origin. Equipments from China are

much cheaper compared to Japans, Europes or Americas. So equipments that

are made in China, are more preferable for a starter like us.

Because we hire the plant location, not buy a land and then build it, plus

if everything goes smoothly, we have a plan to buy the equipments in the end of

this year. Hence, because the year in the website where the equipments are sold

and the year when we will purchase them is same, we do not need Marshall and

Swift Factor or others similar factor to extrapolate our equipments price in the

future.

Then, the result of total main equipment calculation can be seen in

Table 2.1. But in Guthrie method, TCI calculation is conducted by adding some

cost calculated based as Bare Module Cost. The bare module factors included

FOB (Free on Board) purchase, equipment instruments and installations (piping,

concrete, steel, controllers, electrical, insulation, and paint), direct labor for

installation (material erection and equipment setting), and also indirect module

expenses (freight, insurance, taxes, construction overhead, and contractor

engineering expenses). We can see that TBM cost calculation of each module is

multiplied by factor that obtained from the literature (Table 2.2). For some tools

that are not found in the literature, we use the average of the bare module of all

the tools to marginalization. This is done because the tool is a batch chemical

industrial, and is not listed in the general list of existing modules bare. The result

of TBM cost calculation of our equipments can be seen in Table 2.3. We also add

delivery cost calculation from the port to our plant location because it is not

included in the bare module factors.

Table 2.2 Bare Module Factor

Source: Seider W. D., J. D. Seader, and D. R. Lewin. 2004. Product and Process Design

Principles: Synthesis, Analysis, and Evaluation, Second Edition. USA: Wiley.

Table 2.1 Main Equipment Cost

Equipment Capacity Quantity Supplier Price

per Piece (US$) Price per Piece

(Rp) Total Price (Rp)

Grinder 150 kg/h 1 Jinan Tery Machine Co., Ltd. 750 9,657,000 9,657,000

Extractor 400 L (solvent) 150 kg (feed)

2 Shanghai Better Industry Co.,

Ltd. 1,500 19,314,000 38,628,000

Mixing Tank 1500 L 1 Wenzhou Flowtam Light

Industry Co., Ltd. 1,838 23,666,088 23,666,088

Absorption

Tank 1500 L 2 Staes.com, Belgium 2,171 27,953,796 55,907,592

Storage Tank

50 L 1

Staes.com, Belgium

590 7,596,840 7,596,840

100 L 1 1,179 15,180,804 15,180,804

200 L 1 1,255 16,159,380 16,159,380

2500 L 2 2,524 32,499,024 64,998,048

Sealing

Machine 180 pcs/min 1

Guangzhou Shifeng Electric

Appliance Co., Ltd. 1,320 16,996,320 16,996,320

Total Main Equipment Cost 248,790,072

(Source: Authors personal data, gathered from many source)

Table 2.3 Total Bare Module Cost Calculation

Equipment Quantity Price per Piece (Rp) Total Price

(Rp)

Model

Equipment

Assumption

Bare Module

Factors Bare Module Cost

Grinder 1 9,657,000 9,657,000 Crushers 1.39 Rp 13,423,230

Extractor 2 19,314,000 38,628,000 Average Module

Factors 2.18 Rp 84,209,040

Mixing Tank 1 23,666,088 23,666,088 Average Module

Factors 2.18 Rp 51,592,072

Absorption

Tank 2 27,953,796 55,907,592

Average Module

Factors 2.18 Rp 121,878,551

Storage Tank

1 7,596,840 7,596,840

Average Module

Factors 2.18

Rp 16,561,111

1 15,180,804 15,180,804 Rp 33,094,153

1 16,159,380 16,159,380 Rp 35,227,448

2 32,499,024 64,998,048 Rp 141,695,745

Sealing

Machine 1 16,996,320 16,996,320

Average Module

Factors 2.18 Rp 37,051,978

Total Bare Modul Cost Rp 534,733,327

Delivery Cost Rp 26,736,666

Total Main Equipment Cost Rp 561,469,993

(Source: Authors personal data, gathered from many sources)

2.2.1.2 Plant Rearrangement and Modification Cost

We say plant rearrangement and modification cost because the location

that we chose is not an empty land, there is already a plant building standing over

in a total area of 600 m2 at Purbajaya Industrial Estate. So we dont have to build

from zero, just need to do little arrangement and modification at some points,

make it looks like our plants layout. To achieve this, we will just hire a few

workers (20) and an architect. And because we have just started, it is better for

us to hire the location first rather than buying it too. Hiring cost per year then will

be categorized as operating cost. By doing these (hiring an already-built plant), it

will save time (our plant can operate soon) and reduce our fixed capital cost.

Thus, reduce amount of money we need to loan from the bank. But of course, we

dont intend to hire it forever, we have a plan to buy it someday in the future when

our financial state already strong and stable.

As for the price estimation, we allocate Rp 500,000,000 for plant

rearrangement and modification. We assume the process only takes 1.5 month

with cost of worker per day is Rp 150,000 for each person (we hire 20) and the

architects salary is Rp 35,000,000. The summary list of price is shown in Table

2.4.

Table 2.4 Plant Rearrangement and Modification Cost

Cost Breakdown Cost Total Cost

Material and Others Rp 500,000,000 Rp 500,000,000

Architect Rp 35,000,000 Rp 35,000,000

Workers (20), for 45

days

Rp 150,000

(per person per day) Rp 135,000,000

Hiring Cost (3 Months) Rp 100,000,000

Total Plant Rearrangement Cost Rp 770,000,000


2.2.1.3 Offsite Facilities Cost

Offsite facilities cost is the cost of support facilities installation at the

plant (such as the installation of water, electrical, etc) and cost of supporting

equipments that needed to accelerate production process that determined from the

number of employees and also their needs. Here is another advantage of choosing

location in an industrial estate area: we dont need to worry about the installation

of electricity, water, telecommunication, and waste treatment unit. All of them are

already provided by the developer as the infrastructure and facilities of the

industrial estate. So convenient and practical, right? The roads there are also wide

and smooth, very good for transportation.

Then, because our lovely company, PT CiaoBella Cantika Nusantara, is

also not too big, just 600 m2, so the supporting equipments needed are not plenty.

The detailed price and needs for offsite facilities is shown in Table 2.5 and Table

2.6.

Table 2.5 Summary of Utility Installation Cost

No Component Price (Rp) Note

1 Electrical Installation - provided by the

infrastructure and

facilities of the

industrial estate

2 Water Installation -

3 Telecommunication

Installation -

4 Making Road -

5 Internet Network

Installation 5,000,000

Total Utility Installation Cost 5,000,000


Table 2.6 Supporting Equipment Cost

No Supporting Equipment Qty Cost per Piece

(Rp) Total Cost

(Rp)

1 Computer (ASUS) 15 5,000,000 75,000,000

2 Faximile Machine 1 2,100,000 2,100,000

3 Fotocopy Machine (Canon IR 6070) 2 19,000,000 38,000,000

4 Receptionist Desk 1 1,500,000 1,500,000

5 Printer 2 1,200,000 2,400,000

6 Office Stationary 1 2,000,000 2,000,000

7 Clock 5 50,000 250,000

8 Office Table Desk 15 650,000 9,750,000

9 Office Chair Desk 15 300,000 4,500,000

10 Cabinet 5 998,000 4,990,000

11 Sofa 3 1,700,000 5,100,000

12 CCTV 10 1,500,000 15,000,000

13 Canteen Table + Chair Set 15 600,000 9,000,000

Table 2.6 Supporting Equipment Cost (Continued)

No Supporting Equipment Qty Cost per Piece

(Rp) Total Cost (Rp)

14 Meeting Desk + Chair Set 1 5,000,000 5,000,000

15 Meeting Instruments 1 4,000,000 4,000,000

16 Pantry Utensils Set 1 2,500,000 2,500,000

17 Dispenser 3 500,000 1,500,000

18 Toilet Set 10 5,500,000 55,000,000

19 Neon Lamp 40 25,000 1,000,000

21 Generator Set 1 150,000,000 150,000,000

22 Office Car (Avanza All New

1.5 G M/T) 2 186,100,000 372,200,000

23 Recycle Bin 18 35,000 630,000

24 Air Conditioner 1 PK 7 2,400,000 16,800,000

25 Telephone 4 450,000 1,800,000

26 Television 4 1,120,000 4,480,000

Total Supporting Equipment Cost 784,500,000


2.2.1.4 Market Research Cost

One of the responsibilities of the marketers is to analyze the motivation

and behavior of today's consumers and potential consumers. Here are some basic

questions that must be answered by marketers in order to successfully market their

product:

What are their needs and desires?

How are the needs impact on the benefits of the product they are

looking for and what criteria that consumers use to choose products

and brands?

What are the chances they react to certain price, promotion and

service policy?

To answer these questions, marketers should have an idea of how

consumers making the decision to buy the product and how psychological factors

and social factors influence the decision. Market research is a systematic method

of gathering information about customers and markets that will be used by the

company in designing marketing strategies. It is important to know what

consumers or potential consumers need. Thus, market research is an important

input in designing marketing strategies. To perform this market research, it takes

time but not much cost. The total cost of market research for CiaoBellaTM

is Rp

30,000,000. Table 2.7 below shows the detailed cost of market research.

Table 2.7 Market Research Cost

No Activity Cost (Rp)

1 Survey 5,000,000

2 Online questionnaire

(own web development) -

3 Consultant service 25,000,000

Total Market Research Cost 30,000,000


2.2.1.5 Other Cost

Besides the costs that have already explained above, there are some

investment costs that support the plant development, such as patent, licensing and

brand registration cost. Patent is a set of exclusive rights granted by a sovereign

state to an inventor or their assignee for a limited period of time, in exchange for

the public disclosure of the invention. Patent that will be registered by PT

CiaoBella Cantika Nusantara is the overall composition of CiaoBellaTM

. Based on

Direktorat Jenderal Hak atas Kekayaan Intelektual, Ministry of Law and Human

Rights, Republic of Indonesia, the costs that charged for CiaoBellaTM

patent are

shown in Table 2.8.

Table 2.8 Patent Fee Details

No Item Unit Cost (Rp) Total (Rp)

Registration Fee

1 Patent request Per request 575,000 575,000

2 Additional cost per claim

Per request 40,000 40,000

3

Announcement

acceleration that held

as soon as 6 months

Per request 200,000 200,000

4 Substantive inspection Per request 2,000,000 2,000,000

Table 2.8 Patent Fee Details (Continued)


Certification Fee

5 Request for letter of

priority right evidence Per request 250,000 250,000

6 Cost for publishing

certificates Per certificate 250,000 250,000

7 Cost for patent search that has been announced

a) Domestic Per subject 250,000 250,000

b) Overseas Per subject 1,287,600 1,287,600

License Fee

8 License agreement

registration fee Per request 1,000,000 1,000,000

9 Request for

compulsory licensing Per request 3,000,000 3,000,000

10 Request for general list

excerpts of patents Per request 100,000 100,000

Total Cost for Patent 8,952,600

(Source: http://www.dgip.go.id/hak-cipta/tarif-biaya-hak-cipta, accessed on April 24th 2015)

Next is brand. Brand is a name, term, sign, symbol or design, or a

combination of them intended to identify the goods and services of one seller or

group of sellers and to differentiate them from those of other sellers. Therefore it

makes sense to understand that branding is not about getting your target market to

choose you over the competition, but it is about getting your prospects to see you

as the only one that provides a solution to their problem. PT CiaoBella Cantika

Nusantara will register CiaoBellaTM

as an anti-mosquito air freshener product with

the following logo shown in Figure 2.1.

Figure 2.1 CiaoBellaTM

Branding Logo

Table 2.9 below is describing about the detail of brand cost for

CiaoBellaTM

based on law that applicable in Indonesia.

Table 2.9 Brand Fee Details


1 Request for trademark

registration Per request 600,000 600,000

2 Additional cost per claim Per request 50,000 50,000

3 Brand license maintenance fee

Per certificate 2,000,000 2,000,000

4 Brand license publishing costs

Per certificate 100,000 100,000

5 License agreement registration

Per request 500,000 500,000

6 Cost for proof of prioritytrademark

application copy

Per request 250,000 250,000

Total Cost for Brand 3,500,000

(Source: http://www.dgip.go.id/hak-cipta/tarif-biaya-hak-cipta, accessed on April 24th 2015)

2.2.1.6 Distribution Facility Cost

From supply chain analysis section, we decide to distribute our product

through the three region with 2 routes by trucks because it is cheaper and trucks

are flexible, they can reach wider area than plane, ship or train. So we will buy

and invest 6 trucks in order to reduce our distribution cost and make the

distribution easier. The truck that we will buy is HINO Dutro with capacity/load

until 8 ton. The price per unit is Rp 261,300,000. Then the total cost of buying 6

trucks are Rp 1,567,800,000.

2.2.1.7 Contingency

Contingencies are unanticipated costs incurred during construction of

plant. To account for the cost of contingencies, it is common to set aside 15% of

the direct permanent investment. And we use this assumption to determine cost

for contingencies because it is being an useful estimation when our team is unable

to make a better estimate. With that common rule, we get cost of contingency as

much as Rp 559,683,389.

Therefore, from all of the cost calculations that have been conducted,

we can finally calculate the Total Permanent Investment (TPI) and Fixed Capital

Cost by using Equation (2.2) and Equation (2.3). The result is shown in Table

2.10.

Table 2.10 Total Permanent Investment and Fixed Capital Cost

Cost Component Total Cost (Rp)

Main Equipment 561,469,993

Plant Rearrangement and Modification 770,000,000

Utility Installation 5,000,000

Supporting Equipment 784,500,000

Distribution Facility 1,567,800,000

Market Research 30,000,000

Others (Patent + Branding) 12,452,600

Contingency 559,683,389

Total Permanent Invesment (TPI) 4,290,905,982

Fixed Capital Cost 5,063,269,059

(Source: Authors personal data)

2.2.2 Working Capital

Working capital is the fee paid in the first months of the production

process. These are costs that are paid by the company before the company earns

revenue/income from product sales. Components of working capital is the cost

required for monthly operating expenses such as employee salaries and operating

costs to be paid during production. Cost of working capital (WC) can be estimated

by the formulas in Equation (2.4).

(2.4)

Where,

WC = Working Capital

k = 0.05 (for single product)

FC = Fixed Capital

Therefore,

After that, we can calculate the value of Total Capital Investment (TCI),

using Equation (2.1). The result is shown in Table 2.11.

Table 2.11 Total Capital Investment Calculation

(Source: Authors personal data)

Then, our company, PT CiaoBella Cantika Nusantara will have TCI value as big

as Rp 5,316,432,512.

2.3 Operating Cost

2.3.1 Manufacturing Cost

Manufacturing cost is one of the basic costs which must be taken into

account in economical aspect analysis of a product manufacture. Manufacturing

cost is one of the biggest key factors in determining the selling price of

CiaoBellaTM

. Manufacturing cost itself consists of direct production cost, fixed

cost, and plant overhead cost. We can obtain the manufacturing cost by

calculating those three costs mention before, starting from direct production cost,

fixed cost, and the last is plant overhead cost.

2.3.1.1 Direct Production Cost

Direct production cost is an element of manufacturing cost, which is the

major contributor of factorys annual operating cost, that is directly related to the

costs that are changeable or unsteady for the next 10 years operations. To make it

simple, this kind of cost will be affected easily with the change of operating years.

In doing economical analysis, we use four elements of direct product costs as a

consideration, which are annual raw & packaging material costs, annual

direct/operating labour costs, annual utility costs, and annual maintenance costs.

In operation of the factory to produces 8467 packs of anti-mosquito air freshener

per day, a direct production cost must be calculated.

Cost Component Total Cost

Total Permanent Investment (TPI) Rp 4,290,905,982

Fixed Capital Cost Rp 5,063,269,059

WC Rp 253,163,453

TCI Rp 5,316,432,512

a) Raw and Packaging Material Cost

Raw material cost is calculated based on the supply chain analysis

and the mass balances. The total units of raw materials are calculated

based on the needs of each material for the annual production. Four

main factors that affect the price of our raw material cost are their

availability in Indonesia, distance from the supplier to producer, cost to

produce that raw material and the raw material quality. Because raw

material cost gives big contribution to manufacturing cost thus

operating cost of a plant per year, factors that affecting it must be

maintained carefully.

Total annual raw material costs of our plant can be seen in Table

2.12. We put packaging material also in the list because we do not

produce the packaging by ourselves but buying it from another

company. As can be seen, most of our main supplier location is near our

plant location (Bogor and Jakarta) thus it will reduce even eliminate the

delivery cost because we buy in high amounts, the distance is near and

we tend to cooperate with them in long term. As for the plastic jar for

packaging, because we import it from China, we put the delivery cost

into consideration.

b) Direct Labor Cost

Direct labors or operating labors are type of labors who get

involved directly in the production processes. Direct labors are needed

to maintain and make sure the continuity of the production process.

There are operator, worker, shift coordinator, warehouseman, and

process controller.

Operator is the person with the duty to watch and keep an eye to

the raw material supply and process in the process equipments. Worker

is the one who do the filling, labeling, sealing and storing process.

Process controller will stay in the control room and keep eyes on the

overall process, and make sure everything is going alright. Shift

coordinator is the one who coordinates the rotation of each shift.

Meanwhile warehouseman is the person who secures and keeps eyes on

the raw material and final product storage in the plant.

In Table 2.13 and Table 2.14, we can see the list, the number of

operator and worker in each process as well their salary per month. We

use Upah Minimum Kabupaten Bogor as a reference there. As we can

see there is also a variable cost contained in the table, the variable cost

taken is 20% of the amount of total costs. It is needed for the extra costs

for the bonuses such as Tunjangan Hari Raya, Overnight Bonus, Yearly

Bonuses, etc.

Table 2.13 Number of Operator and Worker in Each Process

Production

No Process Total Operator

1 Grinding + Extraction 4

2 Mixing + Absorption 4

Packaging and Storing

No Process Total Worker

3 Filling + Packaging 25

4 Sealing + Packing 2

5 Storing 2

Total Operator + Worker 37


Table 2.14 Total Direct Labor Cost

No Position Salary/Month/Person Amount

(Person) Total Salary

1 Operator + Worker Rp 2,590,000 37 Rp 95,830,000

2 Process Controller Rp 2,590,000 2 Rp 5,180,000

3 Shift Coordinator Rp 2,590,000 2 Rp 5,180,000

4 Warehouseman Rp 2,590,000 2 Rp 5,180,000

Total Labour Cost Rp 111,370,000

Variabel Cost Rp 22,274,000

Total Labour Cost per Month Rp 133,644,000

Total Labour Cost per Year Rp 1,603,728,000 (Source: Authors personal data, gathered from many sources)

Table 2.12 Total Raw and Packaging Material Cost

Raw Material

No Material Supplier Location Needs per

Day

Order per

Year Price (Rp)

Order Cost per

Year (Rp)

1 Lavender Essential

Oil CV M & H Farm Bogor 128.06 kg 42902 kg 650,000/kg 27,885,894,192

2 Dried Citrus Peel CV M & H Farm Bogor 155.92 kg 52234 kg 15,500/kg 809,624,176

3 Vanillin PT Tripper Nature Jakarta 16.01 kg 5363 kg 60,000/kg 321,760,318

4 Ethanol PD Cipta Bangun Nauli Bogor 2329.00 L 780215 L 13,000/L 10,142,795,000

5 Hydro Gel PT Nalpreme

Technochem Jakarta 6.40 kg 2146 kg 600,000/kg 1,287,041,270

Total Raw Material Cost Per Year 40,447,114,956

Packaging Material

No Material Supplier Location Needs per

Day

Order per

Year Price (Rp)

Order Cost per

Year (Rp)

1 Aluminium Foil PT Alsinta Karta Jakarta 8467 pcs 2836445

pcs 15/pcs 42,546,675

2 Packaging (Jar) Ningbo Somewang

Packaging

Shanghai,

China 8467 pcs

2836445

pcs 1,300/pcs 3,687,378,500

Delivery Cost (Jar) 36,873,785

Total Packaging Material Cost Per Year 3,766,798,960 (Source: Authors personal data, gathered from many sources)

c) Plant Utility Cost (Main Equipment)

Utility can be defined as supporting input/material that is needed

by the main equipments usually steam, water, or electricity so that they

can and will operate smoothly. Then, because our production does not

require water or anything else in the process, just electricity, hence, our

plant utility cost only consists of the electrical consumption cost of the

main equipment. From PLNs website, we are told that for the medium

industry with electrical power of 3500 VA until 14 kVA, the electricity

cost is equal to Rp 1,112 per kWh. Based on that data and our

equipments power load, we can calculate the utility cost, the result is

presented in Table 2.15. Because only electricity, plus our plant does

not have many equipments, and the power consumption of existing

equipments also not big, no wonder that the annual plant utility cost is

cheap.

Table 2.15 Electricity Needs for Main Equipments

No Main

Equipment Amount

Time

Used/Day

(h)

Machine

Power

Load

(kW)

Total

Power

per Day

(kWh)

Cost per

kWh

Cost per

Day

1 Grinder 1 1.5 5.5 8.25 Rp 1,112 Rp 9,174

2 Extractor 2 3 11.5 69 Rp 1,112 Rp 76,728

3 Mixing Tank 1 0.67 1.7 1.139 Rp 1,112 Rp 1,267

4 Sealing

Machine 1 0.79 2.5 1.975 Rp 1,112 Rp 2,196

Total Cost per Day Rp 89,365

Total Cost per Year Rp 29,937,197 (Source: Authors personal data, gathered from many sources)

d) Maintenance Costs

The last cost of our direct cost component is maintenance cost.

Maintenance is expensive but has a great benefit for the future.

Maintenance can prevent production failure in the plant, and also helps

extend the age of the equipments as long as possible. There are many

types of maintenance, the common twos are the maintenance that is

done when the equipment has already broken and a scheduled

maintenance. The one that can be maintained is of course tangible

assets like machines and buildings. But because we hire our building

plant, the maintenance in our plant mostly referred to production and

supporting equipments. Usually maintenance cost is used to buy the

spare parts required and to pay the technician fee. Based on rule of

thumb, maintenance cost is 10% from fixed capital cost (FC). Because

our FC is Rp 5,063,269,059, then our annual maintenance cost is Rp

506,326,906.

2.3.1.2 Fixed Charge

In contrary with the direct production cost, fixed charge or fixed cost is

a type of operational cost which is not easily shaken by any change as if in the

direct production cost. The value of fixed cost tends to be constant and its value

can be directly controlled by the company. Fixed cost itself consists of: (1) Plant

Rent Cost (only if we are hiring the location); (2) Insurance Cost; (3) Depreciation

Cost; and (4) Earning Tax Cost. So in order to determine the value of fixed cost

itself then we must calculate those four categories of fixed cost. But for

depreciation and tax, we will not calculate them in this section, they will be

explained, explored and calculated in economic analysis chapter.

a) Hiring Costs of Plant Location

As already informed that we decide to not buy a land and build it

for the location of our plant and office. We just simply hire an already

built plant with total area of 600 m2 in Purba Jaya Industrial Estate,

Cibinong, Bogor, West Java. Because we pay rent fee for each year,

then it is categorized as operating cost, fixed charges specifically. With

hiring a plant in an industrial estate area, it gives us many benefits and

advantages thus reducing the capital cost of our plant. According to the

website, the rent fee per year is Rp 400.000.000.

b) Insurance Costs

Insurance is one of the important aspect that we will need to spend

our money at. It is because insurance will support and reduce our plant

financial loss when unwanted and terrible incident happened. Insurance

is not only for the building and equipments, it is also given to all of our

employees for their benefit in working contract. So they will feel happy,

relieved, and no need to worry in working with us, because their life is

covered by the insurance.

According to the rule of thumb, the amount of plant insurance cost

per year that we need to pay is 1% of our Fixed Capital Cost (FC). For

the life insurance for the indirect labors, we choose the amount of Rp

200.000 per person, however we pay Rp 500.000 per person for direct

labors because they tend to have higher risk than the indirect labors,

therefore need higher premium cost. Total of direct labors are 43 people

meanwhile indirect labors are 76 people. Total annual insurance cost

can be seen in Table 2.16.

Table 2.16 Annual Insurance Cost

Insurance Type Measure Price (Rp)

Plant Insurance 1% of FC cost 50,632,691

Workforces Life Insurance (Direct Labor) Rp 500.000/person 21,500,000

Workforces Life Insurance (Indirect Labor) Rp 200.000/person 15,600,000

ANNUAL INSURANCE COST 87,332,691


2.3.1.3 Plant Overhead

Plant overhead costs consist of general overhead, safety service,

canteen, laboratories, etc. Based on the rule of thumb of operation cost

estimation, the plant overhead cost is equal to 50-70% from operating

labor cost. We decide to use 50% as a basis of calculation of our plant

overhead costs. Then, from there, we get the result of our plant

overhead costs are equal to Rp 801,864,000 per year.

2.3.2 General Expenses

2.3.2.1 Indirect Labor Costs

Other than the operating or direct labors, a plant will also need

employees to run the marketing process and administratives. Those employees

consists of leaders to staffs that works together to maximize the selling rate of the

products. All employees of course will get the benefits from the profit of the

plants selling. The salaries and wages of course will depend on the position and

their job titles. The breakdown and details of the annual indirect labor cost

(executive salaries and clerical wages) can be seen in Table 2.17.

Since our company is new, we try to recruit not too many amount of

employees, due to place limitation too. The total of our indirect workers are 76

people. Like in calculation of direct labor cost, we use UMK Bogor as a reference

for some lower position (security, driver, OB, staff, etc). The wages also used a

variable cost which is 20% of the total wages for the THR, yearly bonuses, etc.

Table 2.17 Annual Indirect Labors Cost

Indirect Labors Cost

No Department Position Salary/month/person

(Rp) Amount

(person) Total (Rp)

1

President

Director 25,000,000 1 25,000,000

2 Vice President

Director 20,000,000 1 20,000,000

3 Secretary of

President

Director 5,000,000 1 5.000.000

4 General

Supervisor 9,000,000 1 9,000,000

5

Finance

Department

Finance

Accounting Manager

12,000,000 1 12,000,000

6 Accounting

Analyst 5,000,000 2 10,000,000

7 Budget and

Planning Coord. 5,000,000 1 5,000,000

8

Product Planning

and Development

Department

Product

Planning and

Development Manager

10,000,000 1 10,000,000

9 Product

Promotion Staff 2,590,000 2 5,180.000

10 Product Design

Staff 2,590,000 2 5,180,000

11 Packaging

Design Staff 2,590,000 2 5,180,000


Table 2.17 Annual Indirect Labors Cost (Continued)

No Department Position Salary/month/person

(Rp) Amount

(person) Total (Rp)

12

General Support and

Service Department

Supply Chain

Manager 10,000,000 1 10,000,000

13 Driver 2,590,000 6 15,540,000

14 Security 2,590,000 2 5,180.000

15 Receptionist 2,590,000 2 5,180.000

16 Cleaning

Service 2,590,000 5 12,950,000

17 Office Boy 2,590,000 5 12,950,000

18 IT Specialist 5,000,000 1 5,000,000

19

HRD Department

HR Manager 10,000,000 1 10,000,000

20 Training & Recruitment

Coordinator 4,000,000 2 8,000,000

21 Community

Development 4,000,000 1 4,000,000

22

HES Department

HES Manager 10,000,000 1 10,000,000

23 Safety and

Environmental Engineer

6,000,000 1 6,000,000

24

Sales and Marketing

Department

Marketing

Manager 10,000,000 1 10,000,000

25 Customer Service

3,000,000 3 9,000,000

26 Sales

Coordinator 4,000,000 1 4,000,000

27 Sales/Promoter 2,590,000 5 12,950,000

28 Market

Researcher 3,000,000 2 6,000,000

29

Production Department

Production

Manager 10,000,000 1 10,000,000

30 Process

Engineer 7,000,000 2 14,000,000

31 QC Manager 6,500,000 1 6,500,000

32 QC Staff 2,590,000 3 7,770,000

33

Maintenance

Department

Maintenance

Manager 12,000,000 1 12,000,000

34 Electrical

Engineer 7,000,000 2 14,000,000

35 Mechanical

Engineer 7,000,000 2 14,000,000

Total per Month

76

369,710,000

Variable Cost 73,942,000

Total per Year 5,323,824,000


Table 2.18 Electricity Needs for Supporting Equipments

No Equipment Qty. Power/Unit

(kW)

Total

Power

Load

(kW)

Time (h)

Total

Power

per Day

(kWh)

Cost per kWh Cost per Day

1 Fotocopy Machine 2 1.2 2.4 4 9.6 Rp 1,112 Rp 10,675

2 Printer Machine 2 0.05 0.1 4 0.4 Rp 1,112 Rp 445

3 Faximile Machine 1 0.3 0.3 4 1.2 Rp 1,112 Rp 1,334

4 Dispenser 3 0.25 0.75 24 18 Rp 1,112 Rp 20,016

5 Neon Lamp 40 0.014 0.56 24 13.44 Rp 1,112 Rp 14,945

6 Computer 15 0.35 5.25 9 47.25 Rp 1,112 Rp 52,542

7 Television 4 0.074 0.296 12 3.552 Rp 1,112 Rp 3,950

8 Air Conditioner 1 PK 7 0.5 3.5 20 70 Rp 1,112 Rp 77,840

9 CCTV 10 0.05 0.5 24 12 Rp 1,112 Rp 13,344

Total Cost for Supporting Equipment per Day Rp 195,092

Total Cost for Supporting Equipment per Year Rp 65,355,654 (Source: Authors personal data, gathered from many sources)

Table 2.19 Annual Cost of Water Consumption

No Water Needs Cost per Year

1 Employee Rp 15,075,000

2 Hygiene and Sanitation Rp 23,952,500

Total Cost for Water Rp 39,027,500 (Source: Authors personal data, gathered from many sources)

2.3.2.2 Office Utility Costs

If plant utility costs are categorized as manufacturing cost (direct

cost), the office utility costs are categorized as general expenses cost.

They are consists of supporting equipment electricity consumption and

water consumption for employee (AQUA gallon) as well for hygiene

and sanitation purpose. The price per kWh for electrical power is the

same like in main equipments utility cost calculation, Rp 1,112 per

kWh. For the water because we have 3 dispensers, we assume that daily

consumption of AQUA is 3 gallons/day with per gallon is Rp 15,000.

For sanitation & hygiene, we are referred to the price given by PDAM

Tirta Kahuripan, Bogor. The result for electricity cost can be seen in

Table 2.18 meanwhile the result for water cost can be seen in Table

2.19.

2.3.2.3 Communication Costs

The company also need to connect to suppliers to get the raw

materials and also to connect to the distributor, consumer, government,

and other third parties. Therefore the company will have to pay for the

communication cost annually. The communication cost consists of

telephones and internet. As can be seen in Table 2.20, the total amount

is not big. It is because we assume that cable telephone is not too

popular nowadays, most of our employees are using social media and

email as a way to communicate.

Table 2.20 Annual Cost of Communication

Component Cost per Month

(Rp)

Cost per Year

(Rp)

Telephone 1,500,000 18,000,000

Internet (Biznet MetroNET 12

Mbps) 3,000,000 36,000,000

Total Communication Cost/Year 54,000,000


2.3.2.4 Marketing Costs

As a new comer and player, good marketing strategy is a weapon

to introduce and raise the popularity of our product. By the means of

radio advertising, printed media advertising (like in newspaper or

magazine page), and online advertisement, we hope that they will raise

the peoples awareness toward our product and hence increasing our

selling rate. We will do product launching too in some lucky, selected

distributor partner, like Carrefour, Lotte Mart and Giant. We will give

discount and promo in the first month of CiaoBellaTM

launching to the

market like buy 1 get 1, buy 2 get 1, or beautiful souvenirs for example.

The allocated budget for each type of marketing per year can be seen in

Table 2.21. The marketing costs are not to big because like the

communication cost, we will focus more on online way, online

advertising in popular websites and social medias where the fee is

cheap but effective.

Table 2.21 Annual Marketing Cost

Marketing Types Cost

Product Launching Rp 58,000,000

Radio Rp 50,000,000

Printed Media Rp 50,000,000

Advertising Online Rp 25,200,000

ANNUAL MARKETING COST Rp 183,200,000


2.3.2.5 Distribution Cost

Like the name, distribution cost covers the fuel, driver,

transportation and toll fee involved when we distribute our products to

the target area (distribution center, wholesaler or retailer). It depends on

how we distribute it, with a truck, train, ship or plane? Based on the

supply chain analysis done in the previous chapter, our company has 3

region of targeted market area and there are two distribution routes,

route 1 from Bogor to Jember and route 2 from Bogor to Surabaya,

each passing by our big and smaller city target. These are done by using

6 trucks with distribution time is once per week. Then, because the

trucks are ours and the drivers are paid monthly (in indirect labor cost

section). So, the twos that remain are fuel and toll fee. From HINO

truck website, it is said that HINO Dutro (truck that we bought) fuel

consumption is 3.5 km/L, with diesel cost equal to Rp 6,900/L in May

2015, we can calculate the annual distribution cost by knowing the

distance for each route + toll fee. The result can be seen in Table 2.22.

Table 2.22 Annual Distribution Cost

Route Distance

(km)

Fuel

Consumption

(km/L)

Diesel Cost

(Rp) Amount

of Truck Total Cost

Bogor - Jember 847 3.5

6,900 per liter

3 Rp 5,009,400

Bogor -

Surabaya 679 3 Rp 4,015,800

Cost per Week Rp 9,025,200

Cost per Year Rp 433,209,600

Toll Fee per Year Rp 21,660,480

Total Distribution Cost Rp 454,870,080


2.3.2.6 Research and Development Costs

Innovation plays an important role especially in a consumer goods

company like us. Even though there are some loyal customers out there

but people tend to get bored to a consumer product as time passing by.

They want something new, fresh and unique. That is why we must

never stop innovating and for that, our company allocates budget for

research and development. The purpose is to maintain and keep

increasing the quality of CiaoBellaTM

or even creating a new anti-

mosquito air freshener variant that has better efficiency.

According to the the rule of thumb, estimation cost for R & D is as

much as 5% of the Total Operating Cost (TOC) annually. TOC can be

calculated by sum all of manufacturing costs, fixed charges and general

expenses that have been explained above. But because our TOC is quite

big (Rp 53,763,379,943), we worry that we will overestimate it. So we

decide to reduce the percentage from 5% to just 0.5%. From that

method, we get annual R & D as much as Rp 268,816,900.

2.3.2.7 Financial Interests

There are two main sources of funding in developing our company

and manufacturing CiaoBellaTM

. They are Bank Central Asia (BCA)

and investor. There are two sources or borrowers of the funding

because most bank and investor do not want to carry the risk alone.

Higher numbers of bank, borrower, or investor mean lower risk. As for

the reason, why we choose BCA than any other bank in Indonesia is

because after we do some comparison, BCAs interest rate is one of the

lowest compared to other banks like BNI, Bank BJB, etc. The interest

rate of BCA is 10.25% per year (www.bca.co.id) and investors interest

rate is 13%.

As common rule, investor rate must be higher that bank deposits

rate ( 6-8%) so they will prefer to invest their money in our company

rather than save it in the bank. The rate usually must be greater than

MARR too to be attractive. As general consideration, minimum MARR

is usually around 12%.

Table 2.23 BCA Loan Payment

Year Initial Loan

(Rp)

Loan

Interest

(Rp)

Payment

(Rp)

Total

Payment

(Rp)

Loan after

Payment

(Rp)

Oct-15

3,189,859,507

3,189,859,507

Oct-16

3,189,859,507

326,960,599

1,063,286,502

1,390,247,102

2,126,573,005

Oct-17

2,126,573,005

217,973,733

1,063,286,502

1,281,260,235

1,063,286,502

Oct-18

1,063,286,502

108,986,866

1,063,286,502

1,172,273,369

- (Source: Authors personal data, gathered from many sources)

Because BCAs interest rate is lower, we loan bigger amount of

money from BCA than the investor with percentage 60%:40%. We do

not want to have debt, so we have desire to return the loan not more

than 3 years. The financial interest and total loan payment to BCA and

the investor from year 1 until 3 can be seen in Table 2.23, Table 2.24,

and Table 2.25.

Table 2.24 Investor Loan Payment

Year Initial Loan

(Rp)

Loan

Interest

(Rp)

Payment

(Rp)

Total

Payment

(Rp)

Loan after

Payment

(Rp)

Oct-15

2,126,573,005

2,126,573,005

Oct-16

2,126,573,005

276,454,491

708,857,668

985,312,159

1,417,715,337

Oct-17

1,417,715,337

184,302,994

708,857,668

893,160,662

708,857,668

Oct-18

708,857,668

92,151,497

708,857,668

801,009,165

- (Source: Authors personal data, gathered from many sources)

Table 2.25 Total Financial Interest

Year Financial Interest

1 Rp 603,415,090

2 Rp 402,276,727

3 Rp 201,138,363

Total Rp 1,206,830,180 (Source: Authors personal data)

We have already known all of the required cost needed to calculate the

operating cost. So all we need to do just sum them all. The result of total operating

cost per year can be seen in Table 2.26.

Table 2.26 Total Operating Cost (TOC)

No Operating Cost Component Cost

MANUFACTURING COSTS

1 Raw Material 40,447,114,956

2 Packaging Material 3,766,798,960

3 Direct/Operating Labour 1,603,728,000

4 Plant Utility (Main Equipment) 29,937,197

5 Maintenance 506,326,906

Direct Costs 46,353,906,019

6 Rent (Plant Location) 400,000,000

7 Insurance 87,332,691

Fixed Charges 487,332,691

Plant Overhead 801,864,000 (Source: Authors personal data)

Table 2.26 Total Operating Cost (TOC) (Continued)

No Operating Cost Component Cost

GENERAL EXPENSES

8 Indirect Labour (Executive Salaries

& Clerical Wages) 5,323,824,000

9 Office Utility (Electrical + Water) 104,383,154

10 Communication 54,000,000

11 Marketing 183,200,000

12 Distribution 454,870,080

13 Financial Interest

TOC 53,763,379,943

14 Research & Development (GE) 268,816,900

TOC + R & D 54,032,196,843 (Source: Authors personal data)