Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Cost Analysis in European House Furnishing Project 2014 for
Waterproofing on Metal Roof by PT XYZ
Rena Gracia* and Ir. Drs. H. Arson Aliludin**
Cost analysis is defined as an economic evaluation technique that involves
the systematic collection, categorization, and analysis of a particular project.
Furthermore, cost analysis allows researchers to optimize the cost incurred to
gain optimum result and benefit. Cost analysis is an important component of
all economic evaluation, a tool for planning (cost projection) and efficiency
assessment as it can be used to evaluate future costs on current level of
resource use basis. This study is to analyze the cost incurred in the project to
PT XYZ and for further use, to determine the unit cost and break-even point
for each product. PT XYZ has more than 10 various services and product
offered in which each has different treatment and application; and currently
has no general standard to determine its unit cost. The current system
applied is based on the deal made between parties and has no further
analysis of break-even point. The scope of this study is the supplying and
installation process of vapour barrier, thermal insulation and waterproofing
membrane on metal roof in this project and the author used cost analysis
throughout the company for determining the unit cost and break even point.
The expected output from this analysis is to provide a standard of project
pricing for further use of the waterproofing company based on the unit cost
and break-even point analysis. This study is expected to give optimum result
of cost-benefit in waterproofing company.
JEL Codes:
1. Introduction
PT XYZ was founded in 1981 as a sister company of a foreign company. Initially, the
company only specialized in waterproofing and other construction work. The company
restructured in 2006 and expanded its activities to encompass supplying imported products
as well as locally manufactured cement based products and chemical solutions.
PT XYZ specializes in waterproofing, sealants, and flooring as well as other building products
for architecture and general construction. The company has over 30 years of experience
handling mega projects throughout Indonesia with an excellent reputation for delivering
superior quality work, supported by the latest technology and research.
Since 1982, PT XYZ has been working for many prestigious projects in Indonesia. One of the
current projects is European House Furnishing project as a subcontractor for waterproofing to
PT ABC. It is a European company registered in the Netherlands that designs and sells
ready-to-assemble furniture (such as beds, chairs and desks), appliances and home
accessories. As of January 2008, the company is the world’s largest furniture retailer. The
construction of European House Furnishing is to be finished by August 2014.
*
Rena Gracia, School of Business and Management, Bandung Institute of Technology
Indonesia. Email: rena.gracia@sbm-itb.ac.id
**
Ir. Drs. H. Arson Aliludin. SE, DEA, School of Business and Management, Bandung Institute of Technology
Indonesia. Email: arson@sbm-itb.ac.id
1
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
PT XYZ as the only company trusted by the distributor is responsible for not only distributing
the product yet applying to the European House Furnishing building roof as well. However,
there are more than one product used in this project and PT XYZ has no base of determining
the unit cost of each product. The current system applied in the company to determine the
selling price is by adding certain percentage to the direct material cost.
2. Literature Review
2.1 Unit Cost
It is a theory regarding cost incurred in the company in order to produce a particular product
or service. A unit cost calculation has a tight relation to fixed and variable cost. Moreover, unit
cost can be an indicator of effectiveness in the company as well.
The formula of unit cost calculation is as follow:
……………(i)
While:
UC = Unit Cost
TVC = Total Variable Cost
TFC = Total Fixed Cost
n
= Total Unit Sold
2.2 Contribution Margin Ratio
The contribution margin, sometimes used as a ratio, is the difference between a company's
total sales revenue and variable costs. In other words, the contribution margin equals the
amount that sales exceed variable costs. This is the sales amount that can be used to, or
contributed to, pay off fixed costs. The concept of this equation relies on the difference
between fixed and variable costs. Fixed costs are production costs that remain the same as
production efforts increase. Variable costs, on the other hand, increase with production
levels. The contribution margin measures how efficiently a company can produce products
and maintain low levels of variable costs. It is considered a managerial ratio because
companies rarely report margins to the public. Instead, management uses this calculation to
help improve internal procedures in the production process.2
The contribution margin is calculated by subtracting total variable costs from total sales
revenue
……………(ii)
While:
CM
= Contribution Margin
SPU = Selling Price Per Unit
TVCU = Total Variable Cost Per Unit
2
http://www.myaccountingcourse.com/financial-ratios/contribution-margin
2
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Total revenues can easily be found on the income statement, however, variable costs must
be calculated by management of the company.
The contribution margin ratio takes the concept of the contribution margin per unit produced
and calculates it as a percentage of the sales price per unit. This shows what percentage of
sales is made up of the contribution margin.
……………(iii)
While:
CMR = Contribution Margin Ratio
CMU = Contribution Margin Per Unit
SPU = Selling Price Per Unit
2.3 Break Even Point
The break-even level or break-even point (BEP) represents the sales amount—in either unit
or revenue terms—that is required to cover total costs (both fixed and variable). Profit at
break-even is zero. Break-even is only possible if a firm’s prices are higher than its variable
costs per unit. If so, then each unit of the product sold will generate some ―contribution‖
toward covering fixed costs3
Figure 2.1 - Break Even Point
It is defined by Droms and Wright (2010) as a simple yet powerful approach to profit planning
that illuminates the relationships among sales, fixed costs, and variable costs.
3
http://en.wikipedia.org/wiki/Break-even_(economics)
3
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Here is the formulation of break-even point:
……………(iv)
While:
BEP = Break Even Point in unit
FC = Fixed Cost
S
= Sales in unit
VC = Variable Cost in unit
As for break-even in Rupiah:
……………(v)
While:
BEP = Break Even Point in Rupiah
SPU = Selling Price Per Unit
3. The Methodology
The analysis itself was conducted step by step; from data gathering, data sorting, and data
processing. The steps are:
a. Cost Identification and Classification
All of the costs associated were classified into direct material cost, direct labor cost, overhead
cost, or selling, general and administrative cost. Then, they are divided into the direct or
indirect cost for further assessment.
b. Cost Behavior Analysis
All of the costs were then being analyzed for its changeability to the business activity. The
findings of this analysis served as a basis for cost allocation in fixed cost and variable cost.
c. Unit Cost Calculation
The two previous steps then underlay the unit cost calculation. This calculation served as
result of the total of fixed cost added by the variable cost divided by the unit sold.
d. Break Even Point Analysis
The last step of the analysis would be the break-even analysis; resulting from dividing total
fixed cost with contribution margin.
4. The Findings
This project was done in January to June 2014. The client themselves required PT XYZ to
apply three layers of waterproofing on its building’s metal roof. Those three layers required
three different materials and treatment of application. Thus, this final project aimed to
determine the unit cost of each material and its application for further use in PT XYZ’s further
project.
4
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
The current system of selling price determination in PT XYZ can be stated in this formulation:
while:
SP = Selling Price from PT XYZ to client
DMC = Direct material cost
Since the percentage taken as profit margin is a very rough estimation yet practical, the
author then initiated to conduct a deeper cost analysis using a managerial accounting
method. This method will provide a more detailed calculation as it will accounted all costs
associated in this project.
After identifying the cost and classifying them into direct cost – indirect cost; fix cost –
variable cost, the author then analyse the unit cost using the managerial accounting method.
See Table A1 – Project Income Statement 2014 and Table A2 – Details of Direct material for
more information. The result is expected to provide PT XYZ a clear guidance on determining
selling price for further project. Results for each materials are as follow:
1. Unit Cost for Polyethylene film as vapour barrier, 0.3 mm
After completing the cost identification and identification, the author then calculate the unit
cost of each material and service provided for its application. The result for the first layer is as
provided in Table 4.1 – PE Film Unit Cost.
Based on the analysis and by using the formula (i) the total unit cost for Polyethylene Film as
vapour barrier 0.3 mm is Rp 19,976 per m2 for the material plus the application by PT XYZ.
2. Unit Cost for Polyisocyanurate Board 80 mm
By using the same method, the unit cost calculation for PIR Board is provided in Table 4.2 –
PIR Board Unit Cost.
Based on the analysis and by using the formula (i) the total unit cost for Polyisocyanurate
Board 80 mm is Rp 233,223 per m2 for the material plus the application by PT XYZ.
3. Unit Cost for Thermoplastic Olefin membrane 1.2mm
As for the last layer, here is the unit cost analysis as provided in Table 4.3 – TPO Membrane
Unit Cost.
Based on the analysis and by using the formula (i) the total unit cost for Thermoplastic Olefin
membrane 1.2 mm is Rp 169,718 per m2 for the material plus the application by PT XYZ.
5
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Table 4.1 - PE Film Unit Cost
Project Size (m2)
2
Price per Unit (Rp/m )
Total Revenue (Rp)
Direct Material
PE film as vapour barrier, 0.3mm
Direct Labor
Direct Labor
Overhead
Supervisor salary (China)
Supervisor accommodation
Staff Salaries
Tools
Unloading, Lifting
Custom Duty
Purchase Import Cost
Bank Administration For Import
Entertainment
Toll & Parking
Petrol Charges
Government Legality
Postage & Courier Charges
Carriage Inwards Import
General & Administration
Expenses
Toll & Parking
Petrol Charges
Administrative Expenses
Bank Charges Administration
Director's Remuneration
Maintenance Warehouse &
Office
Staff Salaries
Telephone Charges
Electricity Charges
Water Charges
Depreciation Of Fixed Assets
Tax Bank Fee
TOTAL
Profit
Contribution margin per unit
Polyethylene film as vapour barrier, 0.3 mm
19,371
19,645
380,534,772
VC
UVC
FC
UFC
323,818,173
16,717
6,214,097
321
8,244,000
1,610,000
760,185
426
83
39
622,800
342,069,256
7,324,301
378.11
27,027,960
4,705,789
48,000
123,432
96,65
305,849
13,989
41,138
2,160,000
1,395.28
242.93
2.48
6.37
4.99
15.79
0.72
2.12
111.51
97,548
319,023
430,515
144,029
616,918
5.04
16.47
22.22
7.44
31.85
195,923
10.11
32
1,516,617
111,462
158,086
22,547
222,573
8,394
17,659
46,209,149
(6,425,234)
2,027
78.29
5.75
8.16
1.16
11.49
0.43
2,385
6
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
0.10
Contribution margin ratio
Table 4.2 - PIR Board Unit Cost
Project Size (m2)
Price per Unit (Rp/m2)
Total Revenue (Rp)
VC
Direct Material
Polyisocyanorate Board 80mm
Direct Labor
Direct Labor
Overhead
Supervisor salary (China)
Supervisor accommodation
Staff Salaries
Tools
Unloading, Lifting
Custom Duty
Purchase Import Cost
Bank Administration For Import
Entertainment
Toll & Parking
Petrol Charges
Government Legality
Postage & Courier Charges
Carriage Inwards Import
General & Administration
Expenses
Toll & Parking
Petrol Charges
Administrative Expenses
Bank Charges Administration
Director's Remuneration
Maintenance Warehouse &
Office
Staff Salaries
Telephone Charges
Electricity Charges
Water Charges
Depreciation Of Fixed Assets
Tax Bank Fee
TOTAL
Polyisocyanorate Board 80 mm
19,371
300,115
5,813,531,539
UVC
FC
3,696,793,740
188,737
93,211,458
4,812
111,294,000
21,735,000
10,262,503
5,745
1,122
530
8,407,800
3,952,504,501
UFC
98,878,065
5,104.44
364,877,460
63,528,146
648,000
1,666,327
1,304,864
4,128,960
188,845
555,356
29,160,000
18,836.27
3,279.55
33.45
86.02
67.36
213.15
9.75
28.67
1,505.34
1,316,900
4,306,817
5,811,956
1,944,397
8,328,398
67.98
222.33
300.03
100.38
429.94
2,644,964
136.54
20,474,335
1,504,731
2,134,160
304,379
3,004,738
113,319
623,823,517
1,056.96
77.68
110.17
15.71
155.12
5.85
32,203.99
434
201,938
7
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
1,295,769,136
98,735
0.33
Profit
Contribution margin per unit
Contribution margin ratio
Table 4.3 - TPO Membrane Unit Cost
2
Project Size (m )
Price per Unit (Rp/m2)
Total Revenue (Rp)
Direct Material
TPO membrane 1.2mm
Direct Labor
Direct Labor
Overhead
Supervisor salary (China)
Supervisor accommodation
Staff Salaries
Tools
Unloading, Lifting
Custom Duty
Purchase Import Cost
Bank Administration For Import
Entertainment
Toll & Parking
Petrol Charges
Government Legality
Postage & Courier Charges
Carriage Inwards Import
General & Administration
Expenses
Toll & Parking
Petrol Charges
Administrative Expenses
Bank Charges Administration
Director's Remuneration
Maintenance Warehouse &
Office
Staff Salaries
Telephone Charges
Electricity Charges
Water Charges
Depreciation Of Fixed Assets
Thermoplastic Olefin membrane 1.2 mm
19,740
230,620
4,552,441,958
VC
UVC
FC
UFC
2,544,533,439
128,902
200,285,245
10,146
86,562,000
16,905,000
7,981,947
4,385
856
404
6,539,400
76,905,162
3,895.90
283,793,580
49,410,780
504,000
1,296,032
1,014,895
3,211,413
146,880
431,944
22,680,000
14,650.44
2,550.76
26.02
66.91
52.39
165.78
7.58
22.30
1,170.82
1,024,256
3,349,746
4,520,410
1,512,309
6,477,643
52.88
172.93
233.36
78.07
334.40
2,057,194
106.20
15,924,483
1,170,346
1,659,902
236,739
2,337,018
822.08
60.42
85.69
12.22
120.65
331
8
Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Tax Bank Fee
TOTAL
Profit
Contribution margin per unit
Contribution margin ratio
2,862,807,031
88,137
145,026
485,196,069
1,204,438,858
85,594
0.37
4.55
24,973.34
9
4.2 Break Even Analysis
After calculating the unit cost, the author then conduct a breakeven analysis using the formula
(iv) and formula (v) on the second chapter for breakeven in Rupiah.
Thus, using the break-even formula, the result for each material is as provided:
1. BEP for Polyethylene film as vapour barrier, 0.3mm
Using formula (iv), here is the break-even point for Polyethylene film as vapour barrier 0.3mm:
and by using formula (v), here is the result for break-even in Rupiah:
For this material, PT XYZ mainly has not succeeded to reach its break-even point in unit as this
product is only sold for 19,371 m 2. Thus, this product leads to a total loss of Rp 6,425,234 for
this project as the contribution margin per unit is only Rp 2,027.03 or 10%. The company
should at least receive Rp 442,803,783 for breakeven.
2. BEP for Polyisocyanurate Board 80 mm
Using formula (iv), here is the break-even point for Polyisocyanurate Board 80mm:
and by using formula (v), here is the result for break-even in Rupiah:
For this material, PT XYZ mainly has successfully reached its break-even point in unit as this
product is sold for 19,371 m2. Thus, this product leads to a total profit of Rp 1,295,769,136 for
this project as its contribution margin per unit is Rp 98,735 or 33%. The company has exceed
the minimum revenue Rp 1,874,904,866 for breakeven.
3. BEP for Thermoplastic Olefin membrane 1.2 mm
Using formula (iv), here is the break-even point for Thermoplastic Olefin membrane 1.2 mm:
and for break-even in Rupiah
11
For this material, PT XYZ mainly has successfully reached its break-even point in unit as this
2
product is sold for 19,740 m . Thus, this product leads to a total profit of Rp 1,209,882,058 for
this project as its contribution margin per unit is Rp 85,594 or 37%. The company has exceed
the minimum revenue Rp 1,292,614,786 for breakeven.
5. Summary and Conclusions
To summarize, the result for this final project for European House Furnishing Project are:
1. There are three main products that are sold to the European House Furnishing Project, they
are Polyethylene Film as vapour barrier 0.3mm, contributed to 4% of total sales;
Polyisocyanurate Board 80mm, contributed to 54% of total sales and Thermoplastic Olefin
membrane 1.2mm, contributed to the rest 42%.
2. This study resulted in a loss for Polyethylene Film 0.3mm for Rp 6,425,234. However, the
Polyisocyanurate Board 80mm and Thermoplastic Olefin membrane 1.2mm has gained profit
thus the whole project has a net profit of Rp 2,499,225,960.
3. The unit cost for each product is Rp 19,976 for Polyethylene Film as vapour barrier 0.3mm;
Rp 233,223 for Polyisocyanurate Board 80mm; and Rp 169,718 for Thermoplastic Olefin
membrane 1.2mm. For breakeven, PT XYZ need to sell at least 22,541 m2 for Polyethylene
Film as vapour barrier 0.3mm for its low selling price, while for the other two products;
Polyisocyanurate Board 80mm and Thermoplastic Olefin membrane 1.2mm, PT XYZ only
has to sell 6,247 m2 and 5,605 m2 respectively with approximately 35% of profit margin.
References
Droms, W.G. & Wright, J.O., 2010, Finance and Accounting for Non‐ financial Managers (6
ed.), Basic Books
Garrison, R.H., Noreen, E.W., Chesley, G.R. (Dick) & Caroll, R.F., 2004, Managerial
Accounting (6th-ed.), McGraw‐ Hill Ryerson, Canadian Editions
Horngren, C.T., Datar, S.M. & Rajan, MV H.D., 2012 , Cost Accounting – A Managerial
Emphasis (14th-ed.), Pearson, New Jersey
Jiambalvo, J., 2012, Managerial Accounting (5th ed.), 2012, John Wiley & Sons Inc.
12
Appendix
The first step to be executed in determining unit cost is cost identification and classification.
Since PT XYZ’s business is divided into three main areas and it has more than one project in
one year, the cost is distributed in revenue-based proportion. Here is the income statement for
European House Furnishing project in 2014
Table A1 – Project Income Statement 2014
ACCOUNT
Sales-Project
Net Sales-Project
Expenses
Direct Material
Purchase Materials (Stock Use For Project)
Direct Labor
Direct Labor
Overhead
Supervisor salary
Supervisor meal, transport, accommodation
Staff Salaries
Tools
Unloading, Lifting
Custom Duty
Purchase Import Cost
Bank Administration For Import
Entertainment
Toll & Parking
Petrol Charges
Government Legality
Postage & Courier Charges
Carriage Inwards Import - Building
Total Direct Expenses
Gross Profit
General & Administration Expenses
Toll & Parking
Petrol Charges
Administrative Expenses
Bank Charges Administration
Director's Remuneration
Amount (Rp)
10,746,508,269
10,746,508,269
Total (Rp)
6,565,145,352
299,710,800
206,100,000
40,250,000
19,004,635
183,107,528
15,570,000
675,699,000
117,644,715
1,200,000
3,085,790
2,416,416
7,646,222
349,713
1,028,438
54,000,000
8,191,958,609
2,554,549,660
2,438,704
7,975,587
10,762,882
3,600,735
15,422,959
13
Maintenance Warehouse & Office
Staff Salaries
Telephone Charges Office & Warehouse
Electricity Charges - Office & Warehouse
ACCOUNT
Water Charges
Depreciation Of Fixed Assets
Tax Bank Fee
Total General & Administration Expenses
Net Profit Before Tax
4,898,082
37,915,435
2,786,539
3,952,148
Amount (Rp)
563,665
5,564,329
209,849
96,090,914
2,458,458,746
Here is the breakdown for direct material purchasing cost. In this project, the materials needed are
purchased by order only. The material cost is in Euro and the rate used in this project is based on June 30,
2014 rate in which each Euro is Rp 15,631.
Table A2 - Detail of Direct Material
No.
Description
1.
Polyethylene film as vapour barrier, 0.3mm
2.
Polyisocyanurate Board 80mm
3.
Thermoplastic Olefin membrane 1.2mm
TOTAL
Quantity
(m2)
20,340
19,587
22,523
Total Material Cost
(€/m2)
20,716
236,504
162,788
420,008
Amount (Rp)
323,818,173
3,696,793,740
2,544,533,439
6,565,145,352
As for metal roof, Polyethylene film as vapour barrier, 0.3mm acts as a plastic surface that covers the
metal roof in which prevents evaporation as the result of temperature difference from inside and outside
the building. Then, right on the top of it is the Polyisocyanurate Board 80mm, in which acts as insulation
for preventing the high temperature and the noisy sound of rain. Lastly, for the last layer is Thermoplastic
Olefin membrane that covers the whole roof and leads the rainwater to gutter.
14