Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Unit Cost and Break-Even Point Analysis of Data Communication
Company Case Study: Pt Xyz
Muhammad Arif
Information and communication technology (ICT) has played an important
role in the economic transformation of countries including Indonesia. For
the year 2013, the International Data Corporation (IDC) predicts the
technology will play an integral role in traditional sectors. Along with that,
there will be significant impact in data communication network market
industry, which eventually leads to market competition. One of major
challenges of data communication network providers is maintaining the
profitability of the company. There are two indicators to maintain the
profitability of the company: unit cost and the break-even point.
This research conducted cost analysis at PT XYZ to find the unit cost and
break-even point. PT XYZ is one of major data communication network
provider specialist for business enterprises since 1988. There are three
kinds of products: terrestrial (leased line, metro ethernet, leased circuit,
packet switched, frame relay, IPVPN), VSAT, and internet (dedicated
internet and broadband internet). They are offered in same unit: bandwidth
–transmission capacity of a computer network or other telecommunication
system stated in MB/s.
The methodology framework starts with cost classification, which divides
the cost incurred into production cost and nonproduction cost. Second,
cost allocation distributes the classified cost into each product to find total
cost of each product. Third, the unit cost is calculated. Along with that, this
research determined the cost behavior whether fixed cost or variable cost
using account analysis. Finally, the break-even point is calculated using
weighted-average contribution margin approach.
Based on the framework, this research discovered the unit cost product.
The highest unit cost was packet switched (IDR 337,419,354 / MB/s),
followed by VSAT (IDR 43,812,106 / MB/s) and frame relay (IDR
19,921,313 / MB/s). The highest unit profit was also packet switched (IDR
135,377,765 / MB/s), followed by frame relay (IDR 12,003,682 / MB/s) and
VSAT (IDR 11,551,289 / MB/s). In conclusion, all products were profitable
at 4.0%-50.6%. Last, the PT XYZ break-even point is 143,267 MB/s and
the break-even point of each product is also determined.
Keywords: Unit Cost, Break-Even Point, Cost Analysis, Data Communication, Indonesia ICT
Field of Research: Managerial Accounting
1. Introduction
1.1 Research Background
Information and communication technology (ICT) has played an important role in the economic
transformation of countries including Indonesia.
_____________________________________________________
Mr. Muhammad Arif, School of Business and Management, Institut Teknologi Bandung, West Java, Indonesia.
muhammad.arif@sbm-itb.ac.id
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
In November 2012, the rate of economic growth in Indonesia was very good predominantly
because of the influx of foreign direct investment in ICT sector. For the year 2013, the
International Data Corporation (IDC) predicts the technology will play an integral role in
traditional sectors. ICT adoption among enterprises is expected to increase significantly in the
coming years. (Ningrum, 2013)
Along with that, there will be significant impact in data communication network providers
market industry, which eventually leads to market competition. Recalled the price war
happened in cellular telecommunication industry in early 2006 (Antaranews, 2007), it could
also be happened in data communication network industry. One of major challenges of data
communication network providers is maintaining the profitability of the company.
There are two indicators to maintain the profitability of the company: unit cost and the breakeven point. Unit cost is the cost incurred of every unit of product. It helps the company to set
proper price and earn profit. The break-even point is the number of units that must be sold for
a company to break even –to neither earn a profit nor incur a loss (Jiambalvo, 2007). In order
to determine unit cost and break-even point, cost analysis should be conducted.
This research conducted cost analysis at PT XYZ, Jakarta. XYZ is chosen because it has been
one of major telecommunication network provider specialist for data communication (one of
ICT segment) for business enterprises since 1988. It initially provided the banking sector with
data communication services and bank reporting system, leading eventually to the
development of ATM Bersama. It allowed customers of different banks to execute inter-bank
transactions via automated teller machine (ATM).
Now, XYZ focuses in secured data communication provider for business enterprises. For
instance, a bank in Jakarta plans to open new branch in Depok (southern Jakarta). The new
branch needs data from Jakarta such as inter-bank withdrawal. The new branch also has to
transfer data to Jakarta such as reporting any transactions occurred. Therefore, connectivity
between Jakarta-Depok has to be established. However, it takes huge effort if the bank builds
its own infrastructure (cable, router, modem, utility, trunk, etc.) just to establish connectivity
between two banks. Moreover, the bank has less competence about it and the costs will be
very expensive. Here is where XYZ takes part. XYZ has network infrastructure that spreaded
over cities in Indonesia. The solution is that the Jakarta bank just needs to get plugged into
XYZ network in Jakarta, while the Depok bank into XYZ network in Depok. Through integrated
XYZ network infrastructure, the connectivity between Jakarta-Depok bank could be
established. This is much less expensive rather than the bank build its own network
infrastructure.
Based on the topology of the network, XYZ has three categorized products: terrestrial
products, VSAT, and internet products.
Terrestrial products provide connectivity between every point of customer’s business through
terrestrial (on ground) infrastructure network. Terrestrial products are divided into six products:
Leased Line, Metro Ethernet, Leased Circuit, Packet Switched, Frame Relay, and IPVPN,
which typically divided based on the technology used. The strength of terrestrial products is
the stability of network.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Figure 1: Terrestrial Network Topology
VSAT provides connectivity between every point of customer’s business through
extraterrestrial infrastructure network. VSAT connects to transponder (part of satellite) that
orbits outside the earth. The strength of VSAT is it could reach remote area not be reach by
terrestrial lastmile (cable, fiber optic, or radio).
Figure 2: VSAT Network Topology
While data communication products and VSAT offer connectivity between customer points,
internet products provide connectivity between customer and the worldwide internet.
Therefore, customer only needs to get plugged into XYZ network infrastructure and customer
can browse the internet. Internet products are divided into Dedicated Internet and Broadband
Internet, which divided based on the offered bandwidth.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Figure 3: Internet Network Topology
There are two terms that related to data communication: network and bandwidth. Network is a
complete single connection between customer and XYZ network. A customer may establish
more than a network, based on the order. Bandwidth is the transmission capacity of a
computer network or other telecommunication system. The unit of bandwidth is megabyte per
second (MB/s) or kilobyte per second (KB/s). All products in XYZ are offered in bandwidth. For
instance, Figure 1 shows three networks. However, the bandwidth of each network varies due
to the customers’ needs.
1.2. Problem Identification
XYZ faces problem in determining product profitability. Based on managerial accounting
perspective, XYZ may conduct and apply cost analysis to get the desirable information. Cost
analysis allows the company to identify and trace unit cost. Next, unit profit can also be
calculated. The comparison between products unit profit will determine which product is more
or less profitable. Moreover, cost analysis can also find break-even point (BEP), the activity
level of production when no profit earned (revenue = cost).
However, the cost analysis itself has major challenges that driven of several reasons. First,
XYZ has numerous costs that incurred not directly to the product. For instance, the cost of
participating in Indonesia ICT Fair (marketing costs) was incurred to promote all products.
Moreover, the cost of office rent in Jakarta (general and administrative costs) was incurred to
provide spaces for all staffs, managers, and directors –not each product exclusively.
Second, though there are costs that incurred directly to the product, mostly they are joint costs.
For instance, domestic backbone is required to transfer data for both terrestrial and internet
products. Therefore, the domestic backbone rent cost should be allocated for each terrestrial
and internet products. The question is: what method that most proper for allocating the costs to
the product? What is the cost driver of each cost related to the product?
Third, calculating Break-Even Point (BEP) per product requires cost behavior analysis. It
divides costs into fixed cost, variable cost, or mixed cost. Therefore, comprehensive business
process and in-depth interview with managers are surely important for accurate analysis.
The first and second problems are related to calculate unit cost, while third problem is related
to calculate BEP. In conclusion, the identified problems are:
1. How the costs are allocated to each XYZ’s product?
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
2. What is the unit cost of each XYZ’s product?
3. What is the cost behavior in XYZ?
4. What is the Break-Even Point (BEP) of each XYZ’s product?
1.3. Objectives
The problems identification that mentioned above has a general purpose: information to gain
more profit in the future. Specifically, the objectives of this research are:
1.
2.
3.
4.
To map and describe about the cost structure of the company.
To understand deeper product knowledge about unit cost.
To understand the cost behavior in XYZ.
To give information about BEP for each XYZ product that would be useful for XYZ
specially marketing division.
5. To recommend valuable input for future decision-making particularly related to the
product.
1.4. Research Scope
This research is conducted on cost analysis regarding to unit cost and break-even point (BEP)
analysis of PT XYZ for one-year period valid from January 2012 until December 2012. The
products that will be included are: terrestrial products (Leased Line, Metro Ethernet, Leased
Circuit, Packet Switched, Frame Relay, and IPVPN), VSAT, and internet products (Dedicated
Internet and Broadband Internet).
In order to simplify the analysis, this research ignores the factor of working area that covers
entire Indonesia. Thus, it assumes that the cost was typically similar in every point in
Indonesia.
2. Literature Review
2.1. Cost Classifications
Based on Jiambalvo (2007), cost classifications in a firm are divided into manufacturing costs
and non-manufacturing costs. Manufacturing costs consist of direct material cost, direct labor
cost, and manufacturing overhead. Nonmanufacturing costs consist of selling cost and
general-and-administrative cost. The hierarchy of cost classifications is shown at Figure 4.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Figure 4: Cost Classification in Manufacturing Firms
Direct Material
Cost
Manufacturing
Costs
Direct Labor
Cost
Manufacturing
Overhead
Total Costs
Selling Cost
Nonmanufacturing
Costs
General and
Administrative
Cost
1. Manufacturing Costs
Manufacturing costs (also known as product cost) are all the costs associated with the
production of goods. They include three cost categories: direct material, direct labor,
and manufacturing overhead (Jiambalvo, 2007: 39).
a. Direct Material Cost (DMC)
Direct material cost (DMC) is the cost of all materials and parts that are directly
traced to items produced (Jiambalvo, 2007: 39). Direct material cost often does not
include the cost of minor materials, such as screws and glue. Although such minor
material costs could be traced to a particular product or service, tracing the costs
may not be worth the time it would take to do so. Materials that are not directly
traced to a product are referred to as indirect materials, which are included in
manufacturing overhead.
b. Direct Labor Cost (DLC)
Direct labor cost (DLC) is the cost of labor that is directly traced to items produced
(Jiambalvo, 2007: 40). However, the cost of production supervisors, such as the
salary, is not included into direct labor cost. Labor costs that are not directly traced
to a product are referred to as indirect labor costs, which are included in
manufacturing overhead.
c. Manufacturing Overhead (MO)
Manufacturing overhead (MO) is the cost of all manufacturing activities other than
direct material and direct labor. It includes indirect material and indirect labor, which
were explained earlier (Jiambalvo, 2007: 40).
2. Nonmanufacturing Costs
Nonmanufacturing costs (also known as period cost) can be defined simply as all costs
that are not associated with the production of goods. (Jiambalvo, 2007: 40). Typically,
nonmanufacturing costs include selling cost and general-and-administrative cost.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
a. Selling Cost (SC)
Selling cost (SC) includes all the cost associated with securing and filling customer
orders (Jiambalvo, 2007: 40). Selling cost includes advertising cost, sales personnel
salaries, depreciation of any equipment used by sales force, and also cost of storing
and shipping finished goods.
b. General and Administrative Cost (GAC)
General and administrative cost (GAC) is all the costs associated with the firm’s
general management (Jiambalvo, 2007: 40). General and administrative cost
includes salaries of the board of directors, depreciation of building and office
equipment, and cost of supplies used by administrative employees.
2.2. Cost Behavior
To implement cost-volume-profit analysis, the behavior of costs should be determined. There
are some costs that change when business activities (e.g., sales volume and production
volume) changes; while some other costs not change. There is generally three types cost
behavior: variable costs, fixed costs, and mixed costs.
1. Variable Costs (VC)
Variable costs (VC) are costs that change in proportion to changes in volume or activity
(Jiambalvo, 2007: 126). Whenever activity increases by 20 percent, variable costs are
supposed to increase by 20 percent.
2. Fixed Costs (FC)
Fixed costs (FC) are costs that do not change in response to changes in activity levels
(Jiambalvo, 2007: 126). Whenever activity increases by 20 percent, fixed costs are
supposed to remain the same.
3. Mixed Costs (MC)
Mixed costs (MC) are costs that contain both a variable cost element and a fixed cost
element (Jiambalvo, 2007: 128). These costs are often referred to as semi variable
costs. For instance, a salesperson paid by Rp3.000.000/month (fixed element) plus
commission equal to 1 percent of sales (variable element) is categorized as mixed
costs.
2.3. Weighted Average Contribution Margin (WACM)
Contribution margin is the difference between the selling price (SP) and variable cost per unit
(VC) (Jiambalvo, 2007: 140). The formula of CM is shown below:
(1)
where
= Contribution margin
= Selling price per unit
= Variable cost per unit
For business that offers more than a product, weighted average contribution margin (WACM)
is needed. It represents the average contribution margin of all business’ products. The formula
of WACM is shown below:
∑
where
∑
= Weighted average contribution margin
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
= Selling proportion of product
= Contribution margin of product
2.4. Break-Even Point (BEP)
Break-even point (BEP) is the number of units that must be sold for a company to break even
–to neither earn a profit nor incur a loss (Jiambalvo, 2007: 138). The formula to calculate BEP
is shown below:
where
= Break-even point
= Total fixed cost
= Weighted average contribution margin
3. Methodology
This research combines cost classification, cost allocation, cost behavior, and break-even
analysis in order to find unit cost and break-even point. The framework is shown as follows:
Figure 5: Framework Methodology
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
1. Costs Incurred
All costs incurred during 2012 take into account. The data is gathered primarily from PT
XYZ accounting division, with a total IDR 1,241,871,272,455.
2. Cost Classification
In this part, the costs incurred will be classified. Based on Jiambalvo (2007),
manufacturing firm divides its cost into manufacturing costs and nonmanufacturing costs.
Since XYZ is not a manufacturing company (but data communication service provider
company), the term of “manufacturing” will be replaced into “production”. The term of
“selling cost” will also be replaced into “marketing cost”.
Therefore, XYZ has two cost classification: (1) production costs which consist of direct
material cost, direct labor cost, and overhead; and (2) nonproduction costs which consist
of marketing cost and general and administrative cost.
3. Cost Allocation
The third step is allocating the classified costs into each product. Several assumptions of
cost drivers will be used to split joint costs incurred for certain product. The objective is to
determine total cost incurred of each product.
4. Unit Cost Calculation
The total cost incurred of each product divided by total units sold equals the unit cost of
each product.
5. Cost Behavior Analysis
It determines fixed cost and variable cost using account analysis method. This method
requires that the manager use professional judgment to classify costs as either fixed or
variable. In this research, four managers were asked and the mean of theirs will be used
for calculation.
6. Break-Even Calculation
The last step is calculating break-even point of each product using the result of cost
behavior and cost allocation. The objective is to find the production level of each product
when no profit earned.
4. Findings
4.1. Cost Classification
Based on the analysis, XYZ has no direct material cost since the entire network devices and
infrastructure are depreciated and rented, which classified as overhead. Furthermore, certain
assumption is used to split joint costs. For example, depreciation of office building is divided
into overhead, marketing cost, and general & administrative cost by 70%, 15%, and 15%,
respectively.
The result of cost classification is cost structure of the company. Production cost, marketing
cost, and general & administrative cost covered 85.9%, 6.1%, and 8.0% of total cost,
respectively. The summary of cost structure is shown at Table 1.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 1: Cost Structure of PT XYZ
NO
COST ITEMS
Production Cost
Direct Labor Cost
a) Production Operational Employee Salary
Total Direct Labor Cost
2. Overhead
a) Communication Network
1) Transponder Rent Cost
2) Domestic Backbone Rent Cost
3) International Backbone Rent Cost
4) Lastmile Access Rent Cost
5) Production Telephone Cost
6) Other Communication Network Cost
b) Production Facility Rent Cost
1) Device Rent Cost
2) Device Room Rent Cost
3) Office Building Rent Cost
4) Transportation Rent Cost
c) Concession Cost
1) Frequency Concession Cost
2) Telecommunication Concession Cost
d) Utility
1) Device Room Utility
2) Office Building Utility
e) Production Training Cost
f)
Device Installation Cost
g) Depreciations
1) Depreciation of Specialized Devices
2) Depreciation of Terrestrial Devices
3) Depreciation of Supporting Devices
4) Depreciation of Office Tools
5) Depreciation of Building
6) Depreciation of Production Director's Vehicle
h) Production Maintenance
1) Maintenance of Specialized Devices
2) Maintenance of Supporting Devices
3) Maintenance of Other Devices
4) Other Production Maintenance
i)
Maintenance of Production Director's Vehicle
j)
Production Non-Operational Employee Salary
k) Production Director Salary
l)
Production Office Supplies
m) Production Meeting and Transportation Cost
Total Overhead
Total Production Cost
B. Nonproduction Cost
1. Marketing Cost
a) Exhibition Cost
b) Promotion Cost
c) Customer Benefit Cost
d) Selling Forum Cost
e) Other Selling Cost
f)
Other Marketing Cost
AMOUNT (IDR)
%
A.
1.
10,069,027,889
10,069,027,889
0.8%
0.8%
118,408,870,569
126,719,850,982
59,112,533,522
117,187,327,645
3,375,508,594
7,620,132,879
9.5%
10.2%
4.8%
9.4%
0.3%
0.6%
1,895,519,635
70,761,886,617
2,814,630,636
9,233,931,736
0.2%
5.7%
0.2%
0.7%
11,724,817,145
38,593,594,979
0.9%
3.1%
8,925,586,854
8,046,320,575
68,309,120
59,085,252,260
0.7%
0.6%
0.0%
4.8%
25,465,844,984
173,946,791,946
67,162,230,190
2,174,916,380
4,027,867,394
200,339,856
2.1%
14.0%
5.4%
0.2%
0.3%
0.0%
7,222,615,980
2,926,389,540
27,795,539,319
6,481,167,590
88,120,481
90,621,250,998
2,295,882,992
1,028,510,773
2,193,515,263
1,057,205,057,432
1,067,274,085,320
0.6%
0.2%
2.2%
0.5%
0.0%
7.3%
0.2%
0.1%
0.2%
85.1%
85.9%
1,818,424,758
2,510,551,636
6,050,978,029
471,414,648
13,332,655,785
1,334,977,091
0.1%
0.2%
0.5%
0.0%
1.1%
0.1%
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
NO
COST ITEMS
g)
h)
i)
j)
Public Relation Cost
Office Building Rent Cost
Office Building Utility
Depreciations
1) Depreciation of Office Tools
2) Depreciation of Building
3) Depreciation of Marketing Director's Vehicle
k) Maintenance of Marketing Director's Vehicle
l)
Marketing Employee Salary
m) Marketing Director Salary
n) Marketing Office Supplies
o) Marketing Telecommunication Cost
p) Marketing Meeting and Transportation Cost
Total Marketing Cost
2. General and Administrative Cost
a) Third Party Service Cost
b) Home Office Rent Cost
c) G&A Meeting and Transportation Cost
d) Tour of Duty Cost
e) G&A Telecommunication Cost
f)
G&A Office Supplies
g) Bad Debt Expense
h) Other General and Administrative Cost
i)
Reimbursement Outsource SDM Cost
j)
Nonproduction Training Cost
k) Office Building Rent Cost
l)
Office Building Utility
m) Depreciations
1) Depreciation of Office Tools
2) Depreciation of Building
3) Depreciation of G&A Director's Vehicle
n) Maintenance of Office Environment
o) Maintenance of G&A Director's Vehicle
p) G&A Employee Salary
q) G&A Director Salary
Total General and Administrative Cost
Total Nonproduction Cost
TOTAL COST
AMOUNT (IDR)
%
1,001,211,419
603,135,136
1,724,211,552
0.1%
0.0%
0.1%
861,266,886
863,114,441
200,339,856
88,120,481
39,873,350,439
2,295,882,992
407,290,266.30
1,068,157,981
868,632,044.32
75,373,715,439
0.1%
0.1%
0.0%
0.0%
3.2%
0.2%
0.0%
0.1%
0.1%
6.1%
6,113,854,063
8,341,653,495
824,761,739
5,951,514,186
1,014,210,608
386,720,051
4,187,525,042
2,355,626,949
11,105,268,102
2,686,094,191
603,135,136
1,724,211,552
0.5%
0.7%
0.1%
0.5%
0.1%
0.0%
0.3%
0.2%
0.9%
0.2%
0.0%
0.1%
817,768,559
863,114,441
440,747,683
437,734,626
193,865,058
37,859,544,861
13,316,121,354
99,223,471,695
174,597,187,135
1,241,871,272,455
0.1%
0.1%
0.0%
0.0%
0.0%
3.0%
1.1%
8.0%
14.1%
100.0%
4.2. Cost Allocation
After all the costs classified, the costs will be allocated into each product. Every cost has its
cost driver. For instance, domestic backbone rent is paid for every bandwidth rented, and only
terrestrial and internet products that require domestic backbone. So, domestic backbone rent
is driven and allocated by the number of bandwidth used of terrestrial and internet products.
Different from domestic backbone, international backbone is essential to internet network
topography and paid for every bandwidth rented. Therefore, international backbone rent is
driven and allocated by the number of bandwidth used of internet products.
On the other hand, several general costs such as board salary, marketing cost, and general &
administrative cost are driven and allocated by the revenue. Detailed cost pool and cost driver
is shown at Table 2.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 2: Cost Pool and Cost Driver
No.
Cost Pool
Cost Driver
1
Transponder Rent
Transponders Usage (Table 3)
2
International Backbone Rent
Bandwidth Usage of Internet (Table 4)
3
Domestic Backbone Rent
Bandwidth Usage of Terrestrial and Internet (Table 5)
4
Direct Labor
5
Production Telephone
6
Production Transportation Rent
7
Depreciation of Supporting Devices
8
Maintenance of Supporting Devices
9
Maintenance of Other Devices
10
Other Production Maintenance
11
Lastmile Access Rent
12
Other Communication Network
13
Device Rent
14
Device Room Rent
15
Office Building Rent
16
Device Room Utility
17
Office Building Utility
18
Depreciation of Terrestrial Devices
19
Depreciation of Building
20
Device Installation
21
Depreciation of Specialized Devices
22
Maintenance of Specialized Device
23
Frequency Concession
24
Telecommunication Concession
25
Production Training
26
Depreciation of Office Tools
27
Depreciation of Vehicle
28
Nonoperational Employee Salary
29
BOD and BOC Salary
30
Marketing
31
General & Administrative
Network Established (Table 6)
Network Established of Terrestrial and Internet (Table 7)
Setups (Table 8)
Specialized Device (Table 9)
Sales (Table 10)
Table 3: Transponders Usage
Product
VSAT
Dedicated Internet
Broadband Internet
Total
Transponders
130,201.3
27,669.7
442.3
158,313.3
%
82.24%
17.48%
0.28%
100.00%
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 4: Bandwidth Usage of Internet Products
Product
Internet
Dedicated Internet
Broadband Internet
Total
Bandwidth (MB/s)
119,319.98
117,442.47
1,877.51
119,319.98
%
100.00%
98.43%
1.57%
100.00%
Table 5: Bandwidth Usage of Terrestrial and Internet Products
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
Internet
Dedicated Internet
Broadband Internet
Total
Bandwidth (MB/s)
155,373.42
104,843.13
9,163.80
390.30
15.54
6,383.37
34,577.27
119,319.98
117,442.47
1,877.51
274,693.40
%
56.56%
38.17%
3.34%
0.14%
0.01%
2.32%
12.59%
43.44%
42.75%
0.68%
100.00%
Table 6: Network Established
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
Total
Network
222,112
7,018
2,433
134
1,819
39,055
171,653
36,285
36,285
17,988
13,768
4,220
276,385
%
80.36%
2.54%
0.88%
0.05%
0.66%
14.13%
62.11%
13.13%
13.13%
6.51%
4.98%
1.53%
100.00%
Table 7: Network Established of Terrestrial and Internet Products
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
Internet
Dedicated Internet
Broadband Internet
Total
Network
222,112
7,018
2,433
134
1,819
39,055
171,653
17,988
13,768
4,220
240,100
%
92.51%
2.92%
1.01%
0.06%
0.76%
16.27%
71.49%
7.49%
5.73%
1.76%
100.00%
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 8: Setups Conducted
Product
Terrestrial
Leased Line
Metro Ethernet
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
Total
Setups
4,535
124
114
158
4,139
250
250
609
432
177
5,394
%
84.07%
2.30%
2.11%
2.93%
76.73%
4.63%
4.63%
11.29%
8.01%
3.28%
100.00%
Table 9: Depreciation of Specialized Device
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
Total
Specialized Device
MARTIS, SDH
BROCADE
DPN
PASSPORT
CISCO ROUTER, JUNIPER
HUGHES, IDIRECT, COMTECH
CISCO ROUTER
CISCO ROUTER
Depreciation (IDR)
5,970,672,944
1,215,104,340
29,598,727
1,184,774,993
3,541,194,884
19,130,567,393
19,130,567,393
364,604,648
279,068,089
85,536,558
25,465,844,984
%
23.45%
4.77%
0.12%
0.00%
0.00%
4.65%
13.91%
75.12%
75.12%
1.43%
1.10%
0.34%
100.00%
Table 10: Sales Earned
PRODUCT
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL SALES
AMOUNT (IDR)
TOTAL (IDR)
1,218,306,220,796
150,859,599,426
24,487,660,554
1,532,759,175
7,346,823,983
203,789,078,052
830,290,299,607
232,301,560,078
232,301,560,078
236,421,555,224
217,593,796,429
18,827,758,795
1,687,029,336,098
%
72.2%
8.9%
1.5%
0.1%
0.4%
12.1%
49.2%
13.8%
13.8%
14.0%
12.9%
1.1%
100%
The result of cost allocation is the total cost of each product. IPVPN cost was the biggest
(47.1%), followed by Dedicated Internet (16.8%) and VSAT (14.8%). Summary of total cost of
each product is shown at Table 11.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 11: Total Cost of Each Product (IDR)
No
Product
A.
1
2
3
4
5
6
B.
1
C.
1
2
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL
Production Cost
Nonproduction Cost
Total Cost
79,165,374,715
16,631,507,253
598,451,483
4,482,829,221
106,074,204,627
499,437,390,098
15,613,043,086
2,534,322,647
158,631,172
760,351,213
21,090,919,426
85,929,952,559
94,778,417,801
19,165,829,900
757,082,655
5,243,180,433
127,165,124,053
585,367,342,657
159,791,241,384
24,041,786,404
183,833,027,789
186,401,392,981
14,691,693,558
1,067,274,085,320
22,519,623,092
1,948,557,536
174,597,187,135
208,921,016,073
16,640,251,094
1,241,871,272,455
4.3. Unit Cost Calculation
After the total cost of each product is determined, the unit cost of each product can be
calculated. The result is shown at Table 12.
Table 12: Unit Cost of Each Product
No
A.
1
2
3
4
5
6
B.
1
C.
1
2
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL
Total Cost (IDR)
(A)
Total Units
Sold (MB/s)
(B)
Unit Cost
(IDR/MB/s)
(C=A/B)
94,778,417,801
19,165,829,900
757,082,655
5,243,180,433
127,165,124,053
585,367,342,657
104,843.1
9,163.8
390.3
15.5
6,383.4
34,577.3
904,002
2,091,472
1,939,722
337,419,354
19,921,313
16,929,251
183,833,027,789
4,195.9
43,812,106
208,921,016,073
16,640,251,094
1,241,871,272,455
117,442.5
1,877.5
1,778,922
8,862,932
4.4. Cost Behavior Analysis
In order to determine cost behavior, this research uses account analysis. This method
requires that the manager use professional judgment to classify costs as either fixed or
variable. So as to accurate the cost behavior, four managers had been asked for account
analysis. The mean of theirs will be used to determine fixed costs and variable costs, as seen
at Table 13.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 13: Account Analysis
Cost Items
Production Cost
Direct Labor Cost
a) Production Operational Employee Salary
Overhead
a) Communication Network
1) Transponder Rent Cost
2) Domestic Backbone Rent Cost
3) International Backbone Rent Cost
4) Lastmile Access Rent Cost
5) Telephone Cost
6) Other Communication Network Cost
b) Production Facility Rent Cost
1) Device Rent Cost
2) Device Room Rent Cost
3) Office Building Rent Cost
4) Transportation Rent Cost
c) Concession Cost
1) Frequency Concession Cost
2) Telecommunication Concession Cost
d) Utility
1) Device Room Utility
2) Office Building Utility
e) Production Training Cost
f)
Device Installation Cost
g) Depreciations
1) Depreciation of Specialized Devices
2) Depreciation of Terrestrial Devices
3) Depreciation of Supporting Devices
4) Depreciation of Office Tools
5) Depreciation of Building
Depreciation of Production Director's
6) Vehicle
h) Production Maintenance
1) Maintenance of Specialized Devices
2) Maintenance of Supporting Devices
3) Maintenance of Other Devices
4) Other Production Maintenance
i)
Maintenance of Production Director's Vehicle
j)
Production Non-Operational Employee Salary
k) Production Director Salary
l)
Production Office Supplies
m) Production Meeting and Transportation Cost
Nonproduction Cost
Marketing Cost
a) Exhibition Cost
b) Promotion Cost
c) Customer Benefit Cost
d) Selling Forum Cost
e) Other Selling Cost
f)
Other Marketing Cost
g) Public Relation Cost
h) Office Building Rent Cost
i)
Office Building Utility
Mean (%)
Fixed Cost Variable Cost
95
5
0
0
0
0
0
0
100
100
100
100
100
100
0
60
60
50
100
40
40
50
0
0
100
100
33
33
0
100
67
67
100
0
0
60
60
95
95
100
40
40
5
5
95
5
0
50
28
100
5
5
5
5
5
100
50
72
0
95
95
95
95
95
75
75
75
75
15
75
75
95
95
25
25
25
25
85
25
25
5
5
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Mean (%)
Fixed Cost Variable Cost
Cost Items
j)
Depreciations
1) Depreciation of Office Tools
2) Depreciation of Building
3) Depreciation of Marketing Director's Vehicle
k) Maintenance of Marketing Director's Vehicle
l)
Marketing Employee Salary
m) Marketing Director Salary
n) Marketing Office Supplies
o) Marketing Telecommunication Cost
p) Marketing Meeting and Transportation Cost
General and Administrative Cost
a) Third Party Service Cost
b) Home Office Rent Cost
c) G&A Meeting and Transportation Cost
d) Tour of Duty Cost
e) G&A Telecommunication Cost
f)
G&A Office Supplies
g) Bad Debt Expense
h) Other General and Administrative Cost
i)
Reimbursement Outsource SDM Cost
j)
Nonproduction Training Cost
k) Office Building Rent Cost
l)
Office Building Utility
m) Depreciations
1) Depreciation of Office Tools
2) Depreciation of Building
3) Depreciation of G&A Director's Vehicle
n) Maintenance of Office Environment
o) Maintenance of G&A Director's Vehicle
p) G&A Employee Salary
q) G&A Director Salary
95
95
95
95
95
95
95
95
95
5
5
5
5
5
5
5
5
5
95
95
95
95
95
95
0
95
95
95
95
95
5
5
5
5
5
5
100
5
5
5
5
5
95
95
95
95
95
95
95
5
5
5
95
95
95
95
Combined and processed with the result of cost allocation, the cost behavior of each product
can be calculated. The summary is shown at Table 14.
Table 14: Cost Behavior of Each Product (IDR)
No
Product
A.
1
2
3
4
5
6
B.
1
C.
1
2
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL
Fixed Cost
Variable Cost
Total Cost
28,035,386,687
5,724,319,796
341,713,659
2,705,257,406
64,697,903,876
274,964,228,368
66,743,031,114
13,441,510,104
415,368,996
2,537,923,028
62,467,220,177
310,403,114,289
94,778,417,801
19,165,829,900
757,082,655
5,243,180,433
127,165,124,053
585,367,342,657
43,505,704,663
140,327,323,126
183,833,027,789
43,743,838,576
6,532,254,446
470,250,607,475
165,177,177,497
10,107,996,648
771,620,664,980
208,921,016,073
16,640,251,094
1,241,871,272,455
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
4.5. Break-Even Analysis
Break-even point (BEP) is the number of units that must be sold for a company to break even
–to neither earn a profit nor incur a loss. For multiple products like XYZ, unit contribution
margin and weighted average contribution margin (WACM) must be determined formerly.
Contribution margin of each product calculation is shown at Table 15.
Table 15: Contribution Margin of Each Product
No
Product
A.
1
2
3
4
5
6
B.
1
C.
1
2
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL
Units
Sold
(MB/s)
Weight
(% of
Total
Units)
Unit
Variable
Cost (IDR)
(A)
Unit Selling
Price (IDR)
(B)
Contribution
Margin
(IDR/MB/s)
(C = B – A)
104,843.1
9,163.8
390.3
15.5
6,383.4
34,577.3
37.59%
3.29%
0.14%
0.01%
2.29%
12.40%
636,599
1,466,805
1,064,217
163,325,363
9,785,930
8,977,085
1,438,908
2,672,217
3,927,084
472,797,119
31,924,995
24,012,602
802,309
1,205,412
2,862,866
309,471,756
22,139,065
15,035,517
4,195.9
1.50%
33,443,585
55,363,395
21,919,810
117,442.5
1,877.5
278,889.3
42.11%
0.67%
100.00%
1,406,452
5,383,722
1,852,769
10,028,042
446,317
4,644,320
After that, using equation (2), WACM can be calculated as follow:
∑
∑
Finally, using equation (3), the BEP can be calculated as follow:
So as to break-even, XYZ has to reach sales 143,267.0 MB/s in a year. The breakdown BEP
of each product is shown at Table 16.
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Proceedings of World Business and Social Science Research Conference
24-25 October, 2013, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-33-7
Table 16: Break-Even Point of Each Product
No
A.
1
2
3
4
5
6
B.
1
C.
1
2
Product
Terrestrial
Leased Line
Metro Ethernet
Leased Circuit
Packet Switched
Frame Relay
IPVPN
VSAT
VSAT
Internet
Dedicated Internet
Broadband Internet
TOTAL
Weight
(A)
37.59%
3.29%
0.14%
0.01%
2.29%
12.40%
BEP
(MB/s)
(B)
BEP of Product
(MB/s)
(C = A x B)
143,267.0
53,858.5
4,707.5
200.5
8.0
3,279.2
17,762.5
1.50%
2,155.5
42.11%
0.67%
60,330.9
964.5
5. Conclusion
With total cost of IDR 1,241,871,272,455, XYZ incurred cost mostly dominated by overhead
(85,1%) since all of the network devices and infrastructure were depreciated and rented such
as transponder rent (9.5%), domestic backbone rent (10.2%), lastmile access rent (9.4%), and
depreciation of terrestrial devices (14.0%).
The unit cost of each product has been determined. The highest unit cost was packet switched
(IDR 337,419,354 / MB/s), followed by VSAT (IDR 43,812,106 / MB/s) and frame relay (IDR
19,921,313 / MB/s). The lowest unit cost was leased line (IDR 904,002 / MB/s), followed by
dedicated internet (IDR 1,778,922 / MB/s) and broadband internet (IDR 8,862,932 / MB/s).
The break-even point (BEP) of the company was 143,267.0 MB/s.
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19