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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

Jinan Tery Machine Co., Ltd.

750

9,657,000

9,657,000

Extractor

400 L (solvent)
150 kg (feed)

Shanghai Better Industry Co.,


Ltd.

1,500

19,314,000

38,628,000

Mixing Tank

1500 L

Wenzhou Flowtam Light


Industry Co., Ltd.

1,838

23,666,088

23,666,088

Absorption
Tank

1500 L

Staes.com, Belgium

2,171

27,953,796

55,907,592

50 L

590

7,596,840

7,596,840

100 L

1,179

15,180,804

15,180,804

200 L

1,255

16,159,380

16,159,380

2500 L

2,524

32,499,024

64,998,048

180 pcs/min

1,320

16,996,320

16,996,320

Staes.com, Belgium

Storage Tank

Sealing
Machine

Guangzhou Shifeng Electric


Appliance Co., Ltd.
Total Main Equipment Cost

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

248,790,072

Table 2.3 Total Bare Module Cost Calculation

Equipment

Quantity

Price per Piece (Rp)

Total Price
(Rp)

Grinder

9,657,000

9,657,000

Extractor

19,314,000

38,628,000

Mixing Tank

23,666,088

Absorption
Tank

Storage Tank

Sealing
Machine

Model
Equipment
Assumption
Crushers

Bare Module
Factors

Bare Module Cost

1.39

Rp

13,423,230

Average Module
Factors

2.18

Rp

84,209,040

23,666,088

Average Module
Factors

2.18

Rp

51,592,072

27,953,796

55,907,592

Average Module
Factors

2.18

Rp

121,878,551

7,596,840

7,596,840

Rp

16,561,111

15,180,804

15,180,804

Rp

33,094,153

16,159,380

16,159,380

Rp

35,227,448

32,499,024

64,998,048

Rp

141,695,745

16,996,320

16,996,320

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)

Average Module
Factors

Average Module
Factors

2.18

2.18

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
Material and Others
Rp
500,000,000
Architect
Rp
35,000,000
Workers (20), for 45
Rp
150,000
days
(per person per day)
Hiring Cost (3 Months)
Total Plant Rearrangement Cost

Total Cost
Rp
500,000,000
Rp
35,000,000
Rp

135,000,000

Rp
Rp

100,000,000
770,000,000

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

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)

Electrical Installation

Water Installation
Telecommunication
3
Installation
4
Making Road
Internet Network
5
Installation
Total Utility Installation Cost

Note

provided by the
infrastructure and
facilities of the
industrial estate

5,000,000
5,000,000

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


Table 2.6 Supporting Equipment Cost

Computer (ASUS)

15

Cost per Piece


(Rp)
5,000,000

Faximile Machine

2,100,000

2,100,000

Fotocopy Machine (Canon IR 6070)

19,000,000

38,000,000

Receptionist Desk

1,500,000

1,500,000

Printer

1,200,000

2,400,000

Office Stationary

2,000,000

2,000,000

Clock

50,000

250,000

Office Table Desk

15

650,000

9,750,000

Office Chair Desk

15

300,000

4,500,000

10

Cabinet

998,000

4,990,000

11

Sofa

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

No

Supporting Equipment

Qty

Total Cost
(Rp)
75,000,000

Table 2.6 Supporting Equipment Cost (Continued)

No

Supporting Equipment

Qty

Cost per Piece


(Rp)

Total Cost (Rp)

14

Meeting Desk + Chair Set

5,000,000

5,000,000

15

Meeting Instruments

4,000,000

4,000,000

16

Pantry Utensils Set

2,500,000

2,500,000

17

Dispenser

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
Office Car (Avanza All New
1.5 G M/T)

150,000,000

150,000,000

186,100,000

372,200,000

23

Recycle Bin

18

35,000

630,000

24

Air Conditioner 1 PK

2,400,000

16,800,000

25

Telephone

450,000

1,800,000

26

Television

1,120,000

4,480,000

22

Total Supporting Equipment Cost

784,500,000

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

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
1
2
3

Activity

Cost (Rp)

Survey
Online questionnaire
(own web development)

5,000,000

Consultant service

25,000,000

Total Market Research Cost

30,000,000

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

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
2
3
4

Patent request
Additional cost per
claim
Announcement
acceleration that held
as soon as 6 months
Substantive inspection

Per request

575,000

575,000

Per request

40,000

40,000

Per request

200,000

200,000

Per request

2,000,000

2,000,000

Table 2.8 Patent Fee Details (Continued)

No

Item

Unit

Cost (Rp)

Total (Rp)

Certification Fee
5
6
7

Request for letter of


priority right evidence
Cost for publishing
certificates

Per request

250,000

250,000

Per certificate

250,000

250,000

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

Per request

1,000,000

1,000,000

Per request

3,000,000

3,000,000

Per request

100,000

100,000

License Fee
8
9
10

License agreement
registration fee
Request for
compulsory licensing
Request for general list
excerpts of patents

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

No

Item

Unit

Cost (Rp)

Total (Rp)

Request for trademark


registration

Per request

600,000

600,000

Additional cost per claim

Per request

50,000

50,000

Brand license maintenance


fee

Per certificate

2,000,000

2,000,000

Brand license publishing


costs

Per certificate

100,000

100,000

Per request

500,000

500,000

Per request

250,000

250,000

5
6

License agreement
registration
Cost for proof of
prioritytrademark
application copy

Total Cost for Brand

3,500,000
th

(Source: http://www.dgip.go.id/hak-cipta/tarif-biaya-hak-cipta, accessed on April 24 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
Main Equipment
Plant Rearrangement and Modification
Utility Installation
Supporting Equipment
Distribution Facility
Market Research
Others (Patent + Branding)
Contingency
Total Permanent Invesment (TPI)
Fixed Capital Cost

Total Cost (Rp)


561,469,993
770,000,000
5,000,000
784,500,000
1,567,800,000
30,000,000
12,452,600
559,683,389
4,290,905,982
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

= 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

Cost Component
Total Permanent Investment (TPI)
Fixed Capital Cost
WC
TCI

Rp
Rp
Rp
Rp

Total Cost
4,290,905,982
5,063,269,059
253,163,453
5,316,432,512

(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.

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
(Source: Authors personal data, gathered from many sources)
Table 2.14 Total Direct Labor Cost

No
1
2
3
4

Position

Salary/Month/Person

Operator + Worker Rp
2,590,000
Process Controller
Rp
2,590,000
Shift Coordinator
Rp
2,590,000
Warehouseman
Rp
2,590,000
Total Labour Cost
Variabel Cost
Total Labour Cost per Month
Total Labour Cost per Year

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

Amount
(Person)
37
2
2
2

Total Salary
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp

95,830,000
5,180,000
5,180,000
5,180,000
111,370,000
22,274,000
133,644,000
1,603,728,000

Table 2.12 Total Raw and Packaging Material Cost

No

Material

2
3
4

Lavender Essential
Oil
Dried Citrus Peel
Vanillin
Ethanol

Hydro Gel

No

Material

Aluminium Foil

Packaging (Jar)

Supplier
CV M & H Farm

Raw Material
Needs per
Location
Day

Price (Rp)

Order Cost per


Year (Rp)

128.06 kg

42902 kg

650,000/kg

27,885,894,192

CV M & H Farm
Bogor
155.92 kg
PT Tripper Nature
Jakarta
16.01 kg
PD Cipta Bangun Nauli
Bogor
2329.00 L
PT Nalpreme
Jakarta
6.40 kg
Technochem
Total Raw Material Cost Per Year
Packaging Material
Needs per
Supplier
Location
Day

52234 kg
5363 kg
780215 L

15,500/kg
60,000/kg
13,000/L

809,624,176
321,760,318
10,142,795,000

2146 kg

600,000/kg

1,287,041,270

PT Alsinta Karta

Bogor

Order per
Year

Jakarta

8467 pcs

Ningbo Somewang
Shanghai,
8467 pcs
Packaging
China
Delivery Cost (Jar)
Total Packaging Material Cost Per Year

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

40,447,114,956
Order per
Year
2836445
pcs
2836445
pcs

Price (Rp)

Order Cost per


Year (Rp)

15/pcs

42,546,675

1,300/pcs

3,687,378,500
36,873,785
3,766,798,960

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
1
2
3
4

Main
Equipment

Amount

Total
Power
per Day
(kWh)
8.25
69
1.139

Cost per
kWh

Cost per
Day

1.5
3
0.67

Machine
Power
Load
(kW)
5.5
11.5
1.7

Rp 1,112
Rp 1,112
Rp 1,112

Rp 9,174
Rp 76,728
Rp 1,267

0.79

2.5

1.975

Rp 1,112

Rp 2,196

Time
Used/Day
(h)

Grinder
1
Extractor
2
Mixing Tank
1
Sealing
1
Machine
Total Cost per Day
Total Cost per Year

Rp
Rp

89,365
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

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

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
2.3.2.1

General Expenses
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

1
2
3
4
5
6

Finance
Department

9
10
11

Product Planning
and Development
Department

Position
President
Director
Vice President
Director
Secretary of
President
Director
General
Supervisor
Finance
Accounting
Manager
Accounting
Analyst
Budget and
Planning Coord.
Product
Planning and
Development
Manager
Product
Promotion Staff
Product Design
Staff
Packaging
Design Staff

Salary/month/person
(Rp)

Amount
(person)

Total (Rp)

25,000,000

25,000,000

20,000,000

20,000,000

5,000,000

5.000.000

9,000,000

9,000,000

12,000,000

12,000,000

5,000,000

10,000,000

5,000,000

5,000,000

10,000,000

10,000,000

2,590,000

5,180.000

2,590,000

5,180,000

2,590,000

5,180,000

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

Table 2.17 Annual Indirect Labors Cost (Continued)

No
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35

Department

Position

Salary/month/person
(Rp)

Amount
(person)

Total (Rp)

10,000,000

10,000,000

2,590,000
2,590,000
2,590,000

6
2
2

15,540,000
5,180.000
5,180.000

2,590,000

12,950,000

2,590,000
5,000,000
10,000,000

5
1
1

12,950,000
5,000,000
10,000,000

4,000,000

8,000,000

4,000,000

4,000,000

10,000,000

10,000,000

6,000,000

6,000,000

10,000,000

10,000,000

3,000,000

9,000,000

4,000,000

4,000,000

2,590,000

12,950,000

3,000,000

6,000,000

10,000,000

10,000,000

7,000,000

14,000,000

6,500,000
2,590,000

1
3

6,500,000
7,770,000

12,000,000

12,000,000

7,000,000

14,000,000

7,000,000

14,000,000

76

369,710,000
73,942,000

Supply Chain
Manager
Driver
Security
General Support and
Receptionist
Service Department
Cleaning
Service
Office Boy
IT Specialist
HR Manager
Training &
Recruitment
HRD Department
Coordinator
Community
Development
HES Manager
Safety and
HES Department
Environmental
Engineer
Marketing
Manager
Customer
Service
Sales and Marketing
Sales
Department
Coordinator
Sales/Promoter
Market
Researcher
Production
Manager
Process
Production Department
Engineer
QC Manager
QC Staff
Maintenance
Manager
Electrical
Maintenance
Engineer
Department
Mechanical
Engineer
Total per Month
Variable Cost
Total per Year

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

5,323,824,000

Table 2.18 Electricity Needs for Supporting Equipments

No

Equipment

1
2
3
4
5
6
7
8
9

Fotocopy Machine
Printer Machine
Faximile Machine
Dispenser
Neon Lamp
Computer
Television
Air Conditioner 1 PK
CCTV

Total
Total
Power/Unit
Power
Power
Qty.
Time (h)
(kW)
Load
per Day
(kW)
(kWh)
2
1.2
2.4
4
9.6
2
0.05
0.1
4
0.4
1
0.3
0.3
4
1.2
3
0.25
0.75
24
18
40
0.014
0.56
24
13.44
15
0.35
5.25
9
47.25
4
0.074
0.296
12
3.552
7
0.5
3.5
20
70
10
0.05
0.5
24
12
Total Cost for Supporting Equipment per Day
Total Cost for Supporting Equipment per Year

Cost per kWh


Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp

1,112
1,112
1,112
1,112
1,112
1,112
1,112
1,112
1,112

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

Table 2.19 Annual Cost of Water Consumption

No
1
2

Water Needs
Employee
Hygiene and Sanitation
Total Cost for Water

Cost per Year


Rp
Rp
Rp

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

Cost per Day

15,075,000
23,952,500
39,027,500

Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp
Rp

10,675
445
1,334
20,016
14,945
52,542
3,950
77,840
13,344
195,092
65,355,654

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)

Telephone
Internet (Biznet MetroNET 12
Mbps)
Total Communication Cost/Year
(Source: Authors personal data, gathered from many sources)

Cost per Year


(Rp)

1,500,000

18,000,000

3,000,000

36,000,000
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
Radio
Printed Media

Rp
Rp
Rp

58,000,000
50,000,000
50,000,000

Advertising Online
ANNUAL MARKETING COST

Rp
Rp

25,200,000
183,200,000

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

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
Bogor - Jember
Bogor Surabaya

Distance
(km)

Fuel
Consumption
(km/L)

Diesel Cost
(Rp)

3.5

6,900
per liter

847
679

Amount
of Truck

Total Cost

Rp

5,009,400

Rp

4,015,800

Cost per Week


Cost per Year
Toll Fee per Year
Total Distribution Cost

Rp
9,025,200
Rp 433,209,600
Rp 21,660,480
Rp 454,870,080

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

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 antimosquito 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

Loan
Interest
(Rp)

Payment
(Rp)

Total
Payment
(Rp)

Loan after
Payment
(Rp)

Year

Initial Loan
(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

Loan
Interest
(Rp)

Initial Loan
(Rp)

Year

Oct-15

Total
Payment
(Rp)

Payment
(Rp)

2,126,573,005

Oct-16
Oct-17
Oct-18

Loan after
Payment
(Rp)
2,126,573,005

2,126,573,005

276,454,491

708,857,668

985,312,159 1,417,715,337

1,417,715,337

184,302,994

708,857,668

893,160,662

708,857,668

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
1
2
3
Total

Financial Interest
Rp
Rp
Rp
Rp

603,415,090
402,276,727
201,138,363
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
1
2
3
4
5
6
7

Operating Cost Component


MANUFACTURING COSTS
Raw Material
Packaging Material
Direct/Operating Labour
Plant Utility (Main Equipment)
Maintenance
Direct Costs
Rent (Plant Location)
Insurance
Fixed Charges
Plant Overhead

(Source: Authors personal data)

Cost
40,447,114,956
3,766,798,960
1,603,728,000
29,937,197
506,326,906
46,353,906,019
400,000,000
87,332,691
487,332,691
801,864,000

Table 2.26 Total Operating Cost (TOC) (Continued)

No

Operating Cost Component

Cost

GENERAL EXPENSES
8
9
10
11
12
13
14

Indirect Labour (Executive Salaries


& Clerical Wages)
Office Utility (Electrical + Water)
Communication
Marketing
Distribution
Financial Interest
TOC
Research & Development (GE)
TOC + R & D

(Source: Authors personal data)

5,323,824,000
104,383,154
54,000,000
183,200,000
454,870,080
53,763,379,943
268,816,900
54,032,196,843