Comparison of Costing Methods in Cinnamon Cutts Product CV

Comparison of Costing Methods in Cinnamon Cutts

Product CV. Alam Manis for Pricing Decision

By:

Aditya Jonathan Kusuma

008201100071

Accounting 2011

Presented to

The Faculty of Economics, President University

In partial fulfillment of the requirements

For

Bachelor’s Degree in Economics, Major in Accounting

PRESIDENT UNIVERSITY

Cikarang Baru – Bekasi

Indonesia

2018

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ABSTRACT

This research is done at CV. Alam Manis for determining which costing

method and pricing method would be applied for cinnamon cutts product pricing

decision. To achieve goal of the research, it began with 70,000 kg cinnamon sample

raw materialfor processing observation from sorting stick until packaging activity.

This research calculated the total production of cinnamon cutts by using both

traditional method and activity based costing method by using cinnamon cutts grade

AA eight centimeters product as example. From traditional costing method,the total

amount of production cost of cinnamon cutts grade AA eight centimeters was IDR

1,062,491,596.66 and by activity based costing method has been resulted IDR

991,871,908.00. From the total production cost presented under ABC method, the

selling price for cinnamon cuts grade AA eight centimeters per kg with cost plus

pricing resulted IDR 48.582,94 per kg, mark up pricing resulted IDR 45.246,04 per

kg, and based on market demand based determined by client with amount IDR 47,125

per kg. The recommendation will be provided by delivering explanations which

costing method and pricing method should be applied for client’s pricing decision.

Key word: traditional costing, activity based costing, cost plus pricing, mark up

pricing, demand based pricing

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INTISARI

Penelitian ini dilaksanakan di CV. Alam Manis untuk menentukan metode

pembiayaan dan metode penentuan harga jual untuk produk kayu manis cutts. Untuk

mencapai tujuan penilitian ini, dimulai dengan observasi pengolahan sampel bahan

baku kayu manis sebanyak 70.000 kg dari pemilahan kayu manis batangan hingga

pengepakan hasil jadi. Penilitian ini bertujuan untuk menghitung total biaya

produksi kayu manis cutts serta menentukan harga jual kayu manis cutts per kg.

Berdasarkan metode pembiayaan traditional kayu manis grade AA 8 cm sebagai

contoh, total biaya produksi dengan metode traditional sebesar Rp.1.062.491.596,66,

dan sedangkan berdasarkan metode pembiayaan per kegiatan sejumlah Rp. IDR

991.871.908,00. Dari total biaya produksi yang telah terhitung, harga jual kayu

manis cutts kualitas AA 8 cm per kg sejumlah Rp. 48.582,94 berdasarkan metode cost

plus pricing, Rp. 45.246,04 berdasarkan metode mark up pricing, dan Rp. 47,125

berdasarkan metode demand based pricing. saran akandisampaikan melaluialasan

pemilihan metode pembiayaan dan metode penentuan harga jual kayu manis cutts.

Kata kunci: metode pembiayaan traditional, metode pembiayaan per aktifitas, cost

plus pricing, mark up pricing, demand based pricing

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ACKNOWLEDGEMENT

Graceful Lord in Heaven, with all praises to God Almighty for His Greatness

and for giving me strength and knowledge to finish this thesis.

I would like to thank and express my sincere gratitude to my supervisor, Ms.

Monika Kussetya Ciptani, SE, AK, M.AK, for her continuous guidance and

encouragement. I cannot successed to finish my thesis without her support, time, and

ideas.

I would like to express my gratitude to the Dean of Faculty of Business Prof.

Dr. Ajay Chauhan, the Head of Accounting Study ProgramAndi Ina Yustina,

M.Sc.,CMA,CIBA, and all staff and lectures in Accounting Department, Faculty of

Business, President University, for their cooperation and kindness

I would like to express my graditude for Mrs. Hj. Asmakoti as owner of CV.

Alam Manis and Mr. Jerry Wijaya as the director who gave me an opportunity for

allow me to support the company’s cinnamon cutts production through my research.

I would like to express my gratitude for Mama, Papa, big sister Joan, little

brother Archil, and my friends whom have been supported me until now.

Aditya Jonathan Kusuma

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TABLE OF CONTENT

THESIS TITLE ................................................................................................ . i

PANEL OF EXAMINERS APPROVAL SHEET. .......................................... ii

THESIS ADVISOR RECOMMENDATION LETTER .................................. iii

DECLARATION OF ORIGINALITY ............................................................ iv

ABSTRACT ..................................................................................................... v

INTISARI……………………………………………………………………. . vi

ACKNOWLEDGEMENT ............................................................................... vii

TABLE OF CONTENTS ................................................................................. viii

CHAPTER I. INTRODUCTION ..................................................................

1.1. Research Background .................................................... 1

1.2. Problem Identification and Statement....... .................... 2

1.3. Research Objectives ...................................................... 3

1.4. Research Benefit ........................................................... 3

1.5. Writing System ............................................................. 4

CHAPTER II. LITERATURE REVIEW .........................................................

2.1. Commodity Cinnamon in Indonesia .................................. 6

2.2. Costing Methods Application ........................................... .. 7

2.2.1. Traditional Costing Method ............................... .. 7

2.2.2. Activity Based Costing (ABC) Method…………. 8

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2.3. Pricing Application for Pricing Decision ......................... 9

2.4. Previous Research ............................................................ .... 11

CHAPTER III. RESEARCH METHODS .......................................................

3.1. Research Methods ............................................................. 12

3.2. Company’s Existing Condition ......................................... 14

CHAPTER IV. RESULT................... .............................................................

4.1. Sample Cinnamon Raw Material Processing Result…… 30

4.2. Calculation of Direct Costs ............................................. 33

4.3. Overhead Cost under Traditional Costing Method….. ... 40

4.4. Total Production Cost UnderTraditional Costing Method 46

4.5. Overhead Cost under Activity Based Costing Method.. . 54

4.6. Total Production Cost under ABC Method…............... .. 63

4.7. Pricing Methods Application of Cinnamon Cutts.............. 68

4.8. Difficulties and Practices………………......................... 71

CHAPTER V : CONCLUSION AND RECOMMENDATION………… ....

5.1. Conclusion…….…. ................................................................. 73

5.2. Recommandation...................................................................... . 74

5.3. Limitation.................................................................................... 75

REFERENCES

APPENDICES

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CHAPTER I

INTRODUCTION

1.1. Reasearch Background

Costing methods is applied to determine how much total cost occurred inside

the business activities. The application of costing method has been affect the decision

making that requires reliable and verifiable calculation of cost in terms of money,

time, workforce, and energy usages. Accurate costing methods present thetotal cost

has been spend with proper calculation, and it will helps decision makers for future

financial decision. It also helps the company to manage their costs efficiently and

prepare future budget.The system costing needs to be evaluated because each

production cost affect to selling price amount of merchandise inventory or services

offer. Evaluation of system costing is also as part of requirement to fulfill faithful

presentation and relevant aspect in presenting financial reports.

The needs of evaluation at Cinnamon Spice Business costing is important

because inside the production involved several proceduresthat has different costing

calculation per production activitiesand different work in process inventory result.

The process requires to determine total weight of work in process inventories per

production process until the cinnamon cutts product ready for sale. By using the data

gathered from production activities, the company can determine how much raw

materials should be spended. If there was a mistake on determining total work in

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process inventory in term weight or cost, it caused overpricing or underpricing

product. If the calculation of production cost is overstated, the selling price of

cinnamon cutt is high which made customers losing interest and moving to desirable

competitor. In other hand, if the miscalculation is understated, it caused negative

profit or phantom profit. Moreover, most Cinnamon Spice Business goes bankrupt

because of mistreating the value of moisture level on cinnamon that affect on total

weight of cinnamon raw material. To reach accuracy of costing,it required

experiences in physical check on cinnamon’s moisture level.

Considering the phenomenon above, the author is interested to do research with

a title,”Comparison of Costing Methods in Cinnamon Cutts Product CV. Alam Manis

for Pricing Decision”. In this research author wants to suggest the client by present a

better way in calculating total production costs and determining selling price of

cinnamon cuts product per kg. This research is conducted for present comparison of

costing methods application to cinnamon cutts production between costing method

application from client to activity based costing method.

1.2. Problem Identification and Statement

a. How much does the total cost of cinnamon cutts eight centimeters and six

centimeters per grade using traditional costing system?

b. How much does the total cost of cinnamon cuttseight centimeters and six

centimeters per grade using activities based costing method (ABC)?

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c. What is the effect of each pricing methods to pricing decision for cinnamon cutts

product?

1.3. Research Objectives

a. To determine the total cost of cinnamon cutts per grade and size using traditional

costing method.

b. To determine the total cost of cinnamon cutts per grade and size using activities

based costing method.

c. To apply each pricing method for determine cinnamon cutts selling price and

perform comparison which pricing methods is the most favorable for the client.

1.4. Research Benefits

The benefits in this research which the reseacher defined in this subchapter seperated

for practical benefit and technical benefit:

a) For practical benefit:

This research is to assist client to see result of processing samples in each

production steps and each forms resulted until finished goods. It also give a

picture for client how much total cost should be recorded from both costing

methods and determine its selling price in each finished goods as well.

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b) For technical benefit:

This research is to see application of activity based costing methods in

agriculture product such as cinnamon and do comparison with traditional

costing methods.

1.5. Writing System

There are five chapters elaborated in this skripsi as below:

a) CHAPTER I. INTRODUCTION is about thesis background with the

following title,”Comparison of Costing Methods in Cinnamon Cutts Product

CV. Alam Manis for Pricing Decision”. In this chapter covers main reasons

why this research has to executed, purposes of the research, research

objective, reserach benefit, and writing system.

b) CHAPTER II. LITERATURE REVIEW is about academic literature reviews

consist of several theories elaborated from several resources to support the

research.

c) CHAPTER III. RESEARCH METHOD is about explanation of methods will

be applied andhow to processing the information provided by the client’s

existing condition.

d) CHAPTER IV. RESULT is about result of the evaluation has been made to

achieve the research objectives. It is also elaborate of problem that was

happening to the client, standards which should be followed, reason why that

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make the problem appeared, effects that will be happen if the problem is still

not solved yet, and recommendations to solve the problem.

e) CHAPTER V. CONCLUSION AND RECOMMENDATION is about a

summary of the evaluation was made in the chapter four and recommendation

for the client to solve its problem.

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CHAPTER II

LITERATURE REVIEW

2.1. Commodity Cinnamon In Indonesia

Cinnamon or Cassia Vera is one of oldest spices product from India and

Indonesia that came from extraction of bark or branch of cinnamomum tree. It has

brown as main color and has spicy taste, sweet and salty that often used as cooking

material for curry and also for medical material of diabetes and heart disease.

Indonesia had blessed with rich nature environment which able produce most spices

like cinnamon as one of them. According to Sasono (2016) stated that Indonesia’s

cinnamon always have high demand in Europe community until now.

Table 2.1. Growth Rate of Cinnamon in Indonesia based on BPS

According to stastistic export central database, cinnamon export value from last

five years reveals significant increasing. Started from 2011 cinnamon’s export

recorded as 45,695 Ton with value total US$ 60,798,000, then at 2012 there is

Year Volume

(Ton)

Increment

(%)

Value

(US$'000)

Increment

(%)

2011 45,695 - 60,798 -

2012 40,403 -11.6 49,593 -18.4

2013 52,507 30 72,958 47.1

2014 63,791 21.5 117,754 61.4

2015 55,027 -13.7 104,052 -11.6

2016* 19,573 - 35,718 -

Average Growth Rate per

Year (%)

6.5 19.6

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decreasing about 40,403 Ton with amount US$ 49,593,000. In 2013, export

cinnamon increased become 52,507 Ton with value US$ 72,598,000. While in 2014,

there was still increasing amount of cinnamon export to 63,791 ton with value US$

117,754,000. But in 2015, had changes in total export about 55,027 Ton with value as

US$ 104,052,000, and until in 2016 in half year, total 19,573 Ton with value as US$

35,718,000.

2.2. Costing Methods Application

Inventory valuation is required for cost allocation to calculate the cost of

manufacture production per one unit. This is where costing and pricing are crucial

because the value presented will affect to total income and asset inside the financial

statement report. According to Bragg (2013), costing is any system for assigning

costs to an element of a business. It is typically used to develop costs for any or

all of the following: customers, distribution channels, employees, geographic

regions, products, product lines, processes, subsidiaries, and entire companies.

According to Wilkinson (2013) stated traditional costing method and activity based

costing method are different on treatment allocation of overheads or indirect costs.

2.2.1. Traditional Costing Method

As stated by Jhonson (2014) that in traditional costing

methods,users of the traditional costing method determine volume

metric is the underlying driver of manufacturing indirect cost through

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own deductionand accountant assign manufacturing indirect cost to

produced finished good inventories. But, it fails to allocate

nonmanufacturing costs that also are connected with the production of

an item, such as administrative expense. Determining the value of price

is very crucial because the price will give an effect on customers

whether they should buy or hire it or not. According to Horgens et al.

(2015), there are three major aspects that affected in price decision such

as customers, competitors and cost. Customers affect price through their

effect on the demand for a product or service. Customer has expecation

to certain product through the features of a product and its quality.

Competitors learn how to provide product or services with cheaper price

with the same qualities or better qualities with same price or even both

in some condition due to innovation and future technology development.

Cost influence prices because they affect supply amount. The lower the

cost of producing a product, the greater the quantity of product the

company is willing to supply.

2.2.2. Activity Based Costing (ABC) Method

As stated by Averkamp (2014) ABC or activities based costing

assigns manufacturing overhead costs to products in a more allocating

indirect costs on the basis of activities hours. It assigns the overhead

cost only to the products that are demanding the activities. According to

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Hansen et al. (2009) activity based costing method assigns resource cost

by direct observation and driver tracing and for labor resource by using

work distribution matrix. Work distribution matrix identifies the amount

of labor consumed per each activity that are already identified, defined

and classified. In ABC methods is also allocated percentage of time

consumed per activity for each job profession such as supervisor and

employee. According to Horgens et al. (2015) ABC system has three

direct manufacturing costs: direct materials, direct manufacturing labor,

and direct machining costs and also has three manufacturing overhead

cost pools: ordering and receiving components, testing and inspection of

final products, and rework (correcting and fixing errors and defects) and

these costs will be applied per list to determine total manufactured cost.

2.3. Pricing Application for Pricing Decision

According to Pride and Ferrell (2013), pricing is the setting price process at

for selling purposes, and may be part of the business's marketing plan. In setting

prices, the business will take into account the price at which it could acquire the

goods, the manufacturing cost, the market place, competition, market

condition, brand, and quality of product.

According to Horgens et al. (2015) stated that pricing decisions has two

different approaches such as market-based and cost-based. Market-based approach is

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considering to customer demand, competitor respond, and sell price charge. For cost-

based approach is considering total cost needed to create one unit product and value

of sell price per unit to cover production costs and reach target return on investment.

As stated by Jan (2013) cost based pricing divided into cost plus pricing and

mark-up pricing. Cost-plus pricing is a pricing method in which selling price of a

product is determined by adding a profit margin to the cost per unit of the product.

Profit margin value can be based on cost per unit, fixed amount per unit, or total

selling price arranged as the target sales. The formula of getting sell price based on

cost is sell price equals to cost per unit times margin profit in percentage plus 100%.

According to Wiley and Sons(2014) stated that in markup pricing, prices are set to

cover all direct costs plus a percentage markup for profit contribution. In other way of

applying markup pricing is by add amount desired profit per product unit.

As detemined by Pass (2005) demand based pricing is a pricing method applied

according to customer’s demand and the perceived value of the product. In demand

based pricing method, company charges the selling price higher when demand value

is high and vice versa. In cinnamon cutt production, the value of selling price of

cinnamon depends on how much cost of the raw materials purchased, how much total

cost of production spent, then customer’s buying price for the cinnamon cutts in the

offer, and how much price of cinnamon in comodity market per grade.

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2.4. Previous Research

In the research has been made by Mahal and Hossain (2015) has shows

application of ABC in Bangladesh that most used in Nestle Bangladesh Ltd. The

company has many product lines as supplement to the company’s usual costing

method. It was believed that design and application of ABC are responsible in

success in cross-functional team. Also it gives a positive contribution on employee

training on modern costing system inside Nestle Bangladesh Ltd. The ABC methods

grant more cost maintenance and takes time in prepare decision making due to its

complexity. While according to Iskandar (2012) stated that Indonesia’s cinnamon

prices influenced by real price of cinnamon exported in unit of dollars and real

domestic cinnamon prices last year.

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CHAPTER III

RESEARCH METHODS

3.1. Research Methods

1. Literature review

Literature review is an account of what has been published on a topic by

accredited researchers. This literature review in this research are focused on

application ofcosting method for cinnamon cutts product and application of pricing

methods from total production cost of cinaamon cutts for pricing decision.

2. Field Research

Beside literature review, the researcher also conduct the direct observation to the

company to get neccessary data and identify the actual production warehouse by

doing:

a. Inquires of the client

In this procedure, researcher asks forinterviews and discussion to owner

and director. Through owner’s permission, researcher will obtains invalidated

information that need to be validated through other procedures. The activities

that researcher will do during research is through oral communication such as

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interview directly to director and head of production in both direct conversation

mouth to mouth or by phone.

b. Documentation

Documentation is the process of tracking down evidences either internal or

external evidences of transactions or activities being researched. Researcher will

check written documents like rules of warehouse, standard operating procedures

on productions activities, daily report of production performance, record of

income raw materials measurement, and report of outcome delivery finished

goods.

c. Observation

Observation is the process of gathering data by seeing, smelling, hearing,

tasting, and feeling to assess certain activities.Through observation, researcher

can obtain information such as process of production, the recording process of

employee attendance, warehouse condition, application of each procedure, and

organization or working environment. In this case researcher will observe

performance of CV. Alam Manis through observe management performance,

labor performance, working place condition, machinery, supporting media

observation and situations currently the company faced. The researcher asked

head of production or authorized employee to share pictures condition of

company’s warehouse and video of CCTV placed in each area of the warehouse

under director’s permission.

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d. Physical examination

Physical examinationis a process of checking or computing physically

variables being examined. Researcher will do physical examination after

gathering other evidences through documentation, inquiries from clients, and

observation. In order to do that, researcher set physical examination activity

become the last things to do in cinnamon cutts product costing for pricing

decision.

3. 3 Company’s Existing Condition

The Company which becomes researcher’s object is CV. Alam Manis, located

at Batang Tabik, Sungai Kamuyang, Payakumbuh City, West Sumatra which belongs

to Mrs. Hj. Asmakoti.The company has been in natural resources trading business

which is more focus on cinnamon from last 2000 until now. CV. Alam Manis’s work

system is manufacture which processing raw materials for this research raw will be

processed into four final products such as cinnamon long stick, cinnamon cutts,

cinnamon broken, and cinnamon powder that prepared in international quality

standard. Researcher will focus on cinnamon cutts product as research material for

determine precise selling price by applying accurate costing method and favorable

pricing method. Cinnamon cutt is a final product of cinnamon that the cinnamon

material has been sliced with same size and sorted according to its grade.

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In Cv. Alam manis, the working hour started from 8.00 AM until 4.00 PM in

each day with one hour break at 12.00 PM until 1.00 PM except Sunday and holidays.

In one months, there was 208 working hours in average. CV. Alam Manis purposed

to process harvested raw material spices like cinnamon into finished goods like

cinnamon cutt with international quality standard and customer’s demand.The

working process follows customer’s demand for each month or pocessed cinnamon

cutt eight centimeters as the standard finished goods of the client. The schedule for

each employee may change each day according to production’s situation such as the

needs of more sorter sticks, or the needs of less cinnamon slicer because of limited

slicing material.

Figure 3.1. Cinnamon grades inside CV. Alam Manis cinnamon cutts

production.

Grade Cinnamon for cinnamon cutts

production

AASP (Quality Special)

AA (Quality One)

A/AA (Quality Two)

Am (Quality Three)

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Cinnamon spice are seperated into several cinnamon gradeslike cinnamon grade

AASP, cinnamon grade AA, cinnamon grade A/AA, and cinnamon grade Am or A

Malaysia. For public knowledge, cinnamon’s grade were differ based on how good of

its physical characteristic start from cinnamon grade AASP as same as cinnamon with

quality specials until cinnamon grade Am (A Malaysia) where has lowest quality in

cinnamon cutts product.

In determining raw material purchase price, the most important factor is the

moisture content when can only determine precisely on that day because its value will

decrease due to the heat in the next day and so on. More moisture content inside the

raw materials, the company should pay lesser than that because it parts of most total

weight is possessed by weight of moisture. The moisture contant is the most

important factor because it will affect the total weight of raw material purchased, if

the total weight is not considered by total percentage of moisture content, it will

affect to miscalculation of total sorting cinnamon stick result and will affect to other

wip result too that also caused overrated expenses calculation. That is why, Cv. Alam

Manis has to adjust the weight or purchase price per kg for moisture content. To

determine total percentage of moisture content, it involves director’s and owner

judgment through direct physical examination.

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Figure 3.2. cinnamon grade AASP

Cinnamon grade AASP has characteristic of small diameter size with about less

than 14 mm, straight rolling, thin bark skin with its thickness around two or three

millimeters, smooth texture surface and has bright brown color. Cinnamon grade

AASP is also called as cinnamon grade AA special that is has the most international

qualification of cinnamon and also has distinguished smaller size diameter. It also has

stronger woody fragrance and beautiful form that most often used as art craft. But in

other hand, cinnamon cutts grade AASP can be break easily because has the least

physical endurance that often break without proper maintenance. Customers order

cinnamon grade AASP with American measurement or in inch unit with conversion

to the closest cm. For example, if customer order four inches cinnamon cutts grade

AASP, then client will sliced into 10 cm where one inch equals to 2.54 cm.

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Figure 3.3. Cinnamon Grade AA

While cinnamon grade AA is bigger size ver of grade AASP that have bit darker

brown color, but its most part has straight rolling form. It has diameter size about 14

up to 20 mm and its bark thickness is around three up to five milimeters. Cinnamon

grade AA also has less woody fragrance than cinnamon grade AASP. Cinnamon

grade AA or cinnamon quality one is often requested by customers because it has

close physical silimarity to cinnamon grade AASP but it has stronger physical

endurance. Customers often order cinnamon cutts grade AA in centimeters size which

is size 8 cm or 6 cm in common.

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Figure 3.4. Cinnamon Grade A/AA

Cinnamon grade A/AA has more darker brown colour than cinnamon grade

AA.It has diameter size around 20 mm up to 25 mm and its bark thickness is around

four up to seven milimeters. Cinnamon grade A/AA is one of the most common grade

has been gathered from suppliers where has the biggest proportion in cinnamon raw

material. Cinnamon grade A/AA can be turned into cinnamon grade AA if has been

processed through washing activity and drying activity because its bark thickness and

color can be changed from sunlight’s heat or production oven’s heat. Customers also

order cinnamon grade A/AA in terms centimeter unit like cinnamon grade AA.

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Figure 3.5. Cinnamon Grade A

For cinnamon grade A has its bark bigger thickess, bigger diameter size and

darker color than cinnamon grade AA and the most of part its bark is not neat rolling

shape just like cinnamon grade AA and cinnamon AASP or its rolling very deep.

Cinnamon grade Am has lowest market price for cinnamon cutts because has low

customer demand and has less cinnamon fragrance. Cinnamon grade Am often comes

from cinnamon trees that has many branch has been cut off or uneven growth of

cinnamon tree.

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• The Production process of cinnamon cutts

Figure 3.6. Cinnamon cutts Production Process

There are eight activities that applied for processing cinnamon cutts in Cv.

Alam Manis in figure 3.6. The production process started with receiving raw

material from supplier, then sort the raw materials into designed cinnamon

grades for slicing material, slice the cinnamon into size according to customer’s

order, after that sliced cinnamon is washed and sunbathe in drying area, then

sorted again based on cinnamon grade, and finaly assorted cinnamon cutts

packed in plastic bag per kg and packed in carton box per 20 kg. All activities

has been done in the same time in one place of CV. Alam Manis per day for 8

work hours in average. Each activity has processed 800 kg cinnamon material in

average per day.

Receiving Raw

Material

Sorting Stick

Slicing Washing Drying Sortingcutts

PackagingDelivering

finished goods

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Figure 3.7. Income raw material comes from supplier

The production of cinnamon cutts, there are eight steps of processing as follow,

it starts with received raw materials from raw cinnamon suppliers. Owner and/or

director, and employee in charge record the measurement of weight, grade and

condition of the raw material in income raw material notebook, then the lifters move

the raw materials to available location for new raw material. The measurement is

recorded in netto where the value recorded after deduction weight of packaging and

probability moisture content by deduct 0.5 up to two kg per sack. Each sack has

weight around five kg is smallest until 80 kg depends on content inside of it. This

process also records the employees that participate in lifting raw material to record its

payroll. After that process, owner/director make a discussion with supplier on total

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purchase price and payment system where in general all be paid in cash ortransfer to

supplier’s bank account. The employee who isinvolved on the recording or director

ensuring that total raw material from each supplier per date entry, total kg and the

total sack amount is matched to record in income material notebook.

Figure 3.8. Cinnamon grades resulted from sorting stick process

Then,employees sort the raw material of cinnamon stick according to its each

cinnamon grade based on company’s standard operating procedure. Each grade has

own storage place of WIP cinnamon stick. During research, cinnamon stick sorter

was still separated the raw materials into main parts for cinnamon slicing.This

process is necessary for recheck condition of raw material fully by determining how

much cinnamon sorted per grade and per supplier. In this step, the director search

proof of his hypothesis about the content percentage of raw material cinnamon. From

Cinnamon Stick Sorting Result

Slice material

AA/A3

A3/AM

Broken material KBK

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the hypothesis, owner and director can set purchase price range for purchasing

cinnamon raw material decision.

Figure 3.9. Cinnamon slicer use slicing machine.

In slicing process, the employee who in charge must wear protective gears and

must in good condition without illness because this process may cause injury on the

employee involved. Besides, before slicing started, the director and employee in

charge will do physical check on circular saw sharpness and type, the sliced material

used, the protective gears conditions, and the location for slicing. The slicing result

must not take a place in the same area if has different size and grade.

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After slicing process,the sliced cinnamons are washed to remove its dust, dirt,

and molds by turbo water sprayer. The machine is depended on the power of

generators and water supply to be used in washing process. This washing process will

be done if there are sliced materials resulted from slicing process and if it has

available drying spaces to be used. This washing steps require two or more people

where one of them become cinnamon washer while other employee assist the washer

by delivering the sliced material and bring washed cinnamon to free drying space or

oven area.

Figure 3.10. Drying area for washed cinnamon cutts.

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The washed cinnamon are dried under sunlight directly or by using gas-

powered oven if it rainy or cold weather until its completely dried.Washers assistant

arrange the washed cinnamon on the same thick for less time in the sunny day. In this

process, the weather has a big impact to control the drying result. If there was more

heat produced from the sun, so there will be less dry, but if the weather is rainy, the

company will use gas powered oven to dry the washed cinnamon. Each morning,

director do the physical checking bout the condition of washed cinnamon and decide

which area that can be sorted first directly. Then, after the washed material is dried,

cinnamon cutts sorter bring the material to table sorting area to be sorted according

to each grade.

Figure 3.11. Cinnamon cutts product, grade AA eight centimeters in red net,

and cinnamon cutts product grade A/AA eight centimeters in yellow net.

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Cinnamon cutts sorter select the dried cinnamon and packed per one kg rough

in plastic or fiber net according to each grade. He/she seperates into thegrade which

are most ordered slicing size. Grade AASP still has same characteristic as explained

before, but for Grade AA, and grade A/AA has slightly different. In cinnamon cuts,

Grade AA has more brownish color than grade AASP and has a bit larger diameter

size. Grade A/AA has thicker bark than grade AA and has halved wavy rolling

shape.Cinnamon cutts grade A malaysia, has same or a bit bigger diameter size ,same

or thicker bark, has more a bit dark brown color than grade A/AA. If there is same

cinnamon cutt that has characteristic that is not listed before such as the length size is

not same as eight centimeters or it has many physical damage on cinnamon cutts, thus

listed as cinnamon cutting. From dried cinnamon then besorted again based on its

grade of cinnamon cutts and measured per one kgpacked in plastic bag of fiber net.

Figure 3.12. Cinnamon cutts product has packaged in carton box.

40

Packagers gather all sorted cinnamon cutts and arranged in carton box per 20

Kg or 25 Kg according to customer’s order and stored sccording to each grade and

size in storage room. If using carton box, it will marked by using color of strap ribbon

and color of tape color to differ each grade and size. In addition, in the carton box

also attach information about grade and size on it as well. While in grain sack, it

using pattern of grain sack and color of grain thread to distinguish the finished goods.

After the process of packaging, owner or director contacts the expedition

delivery services to deliver the goods to customers or harbors if the customer is in

different island destination. The expedition price counted in general IDR 2,000,000

up to IDR 5,000,000 per trip depends on how much total weight of packaging and

how far the destination.

In raw materials, director has his own estimation of percentage resulted from

sorting cinnamon stick. The percentage comes from last calculation of sorting stick

result gathered and made own constant value per grade result. In this calculation

most appeared in cinnamon raw material of grade ASL. In that grade, the percentages

as follow: Grade AA 15%, Grade A/AA 45%, grade A 35% while 5% is grade KBK

which is will be used as material for cinnamon broken. This percentage is not always

solid to be used but only as guidance on calculation of price purchase of the raw

material. The percentages can be changed according to the outside physical content

of raw material. The percentage of grade AASP can add if it has probability in output

of production resulted cinnamon cut grade AASP.

41

Those percentage portions were adopted if the raw material has 10% or less

moisture content. If the moisture content is more than 10% or from physical check

has found a white layers or lighter brown in the middle of bark and felt wet when the

raw material touched, it means has higher moisture content that need to adjust its total

weight. Other condition that has sign of higher moisture level is the cinnamon raw

material bent forced easily and its bark was sticky because its oil content in. That is

why, director and owner agreed to adjust its total weight of raw material by calculate

its netweight after deducted by weight of packages and moisture content per times of

weight measurement.

42

CHAPTER IV

RESULT

4.1. Sample Cinnamon Raw Material Processing Result

After six months started from January 2016 until June 2016 where took 100

days to processing 70,000 kg sample of raw material Cinnamon. The sample has been

processed in six production processes as follow: sorting stick, slicing,

washing,drying, sorting cutt, and packaging.

In sorting stick process, raw material cinnamon sorted based on cinnamon

grade criteria. For the result gathered that cinnamon grade AA/A3 from sorting stick

activitywas53,970 kg or 77.10% of total sample raw material, for grade A3/Am

was13,209 kg or 18.87% of total sample raw material, and then for grade KBK or

cinnamon that cannot be used as slicing materialwas 1,967 kg or 2.81% from total

raw material. The remainder of processing sorting stick considered as waste and loss

was854 kg or 1.22% from total raw material. Researcher can concluded that raw

material mostly consist of grade AA/A3 inside of the sample. From the sorting stick

process resulted, material of cinnamon stick grade AA/A3 sliced into eight

centimeters and for material of cinnamon stick grade A3/Am sliced into six

centimeters.

In slicing process for last six months has sliced 67,179 kg slicing material in

total and the slicingcinnamon result as followed. From 53,970 kg slicing material of

grade AA/A3 resulted 47,574.56 kg of sliced cinnamon cuts eight centimetersor

43

88.15% from total slicing material eight centimeters. Cinnamon cutting from slicing

cinnamon with size eight centimeters was 2,169.59 kg or 4.02% of the total slicing

material. For cinnamon raw powder of eight centimeters was 1,921.33 kg or 3.56% of

the total slicing material. For the other result that considered as waste and loss from

slicing cinnamon in eight centimeters resulted 2,304.52 kg or 4.27% of the total

slicing material.In 13,209 kg of slicing material grade A3/Am has resulted 11,425.79

kg of sliced cinnamon cuts six centimeters or 86.50% from total slicing material for

six centimeters. Cinnamon cutting of six centimeters was 763.48 kg or 5.78% of the

total slicing material. Cinnamon raw powder of six centimeters resulted 747.63 kg or

5.66% fromthe total slicing material. For waste / loss resulted from slicing cinnamon

in six centimeters was 272.11 kg or 2.06% of the total slicing material.

Washing and drying process have been done in same production area. All sliced

cinnamon washed to remove dirts and oils in the barks. From all eight centimeters

sliced cinnamon of 47,574.56 kg washed and driedresulted 40,189.08 kg or 84.48%

from total washing material of eight centimeters, thus waste and loss of washing

process was 7,385.47 kg removed or 15.52% from the total washing material. For

washing material of six centimeters with total 11,425.79 kgresulted as followed,

washed and dried cinnamon six centimeters is 9,353.15 kg or 81,86% from total

washing material of six centimeters, and for the rest is waste/loss with total 2,072.64

kg or 18.14% of total washing material six centimeters.

In sorting cutt process where the dried cinnamon are sorted based on each grade

and size. From sorting cutts material eight centimeters with total 40,189.08 kg has

44

sorted according to its cinnamon grade such as grade AA, grade A/AA, and Grade

Am with result as followed. For grade AA eight centimeters resulted 23,478.46 kg or

58.42% from total eight centimeters sorting cutts material. For grade A/AA eight

centimeters resulted 8,138.29 kg or 20.25% from the total eight centimeters sorting

cutts material. For grade Am eight centimeters resulted 2,065.72 kg or 5.14% from

the total and the rest of the result of sorting cuttseight centimeters were cinnamon

cutting 5,059.81 kg and waste / loss from sorting cutts in eight centimeters part

resulted 1,446.81 kg. While in sorting material of cinnamon six centimeters with total

9,353.15 kg has received the sorting result of cinnamon cutts six centimeters as

followed. There was no grade AA found after sorting, but there was grade A/AA

resulted 5,755.93 kg or 61,54% of total six centimeters sorting cutt material. For

grade Am resulted 2,027.76 kg or 21,68% of total six centimeters sorting cutt

material. The rest of result sorting cutt materialsix centimeters were cinnamon

cuttting with 1,347.79 kg and waste/ loss from sorting cutts material 6 centimeters

resulted 221.67 kg.

From sample processing above, it is found that from 70,000 kg raw material has

produced cinnamon cutts eight centimeters was 23,478.46 kg of total cinnamon cutts

combined per grade. For cinnamon cutts six centimeters overall has resulted in total

7,783.86kg. During processing raw material, researcher also gather total waste and

loss with total 14,557.21 kg or 20.8% of total raw material has been lost due to

moisture content and inventory movement to each processing procedure.

45

4.2. Calculation of Direct Costs

From the sample, researcher calculates total direct costs where these two slicing

material sliced on size eight centimeters for grade AA/A3 sorting stick material and

six centimeters for A3/Am sorting stick material. For grade AA/A3, the cost

calculated from sorting stick, slicing, washing and drying activities. For size eight

centimeters, the calculation total direct costs as follow.

Table 4.1. Calculation of direct cost grade AA/A3 for size eight

centimeters.

Cost Weight (kg) Cost per kg

(IDR) Total (IDR)

Purchase price material AA / A3

53,970

21,000.00

1,133,370,000.00

Payroll sorting stick

53,970

140.00

7,555,800.00

Payroll slicing

53,970

183.33

9,894,320.10

Payroll washing and drying 47,574.56 150.00 7,136,184.00

Total direct cost eight

centimeters from sorting stick

until drying activity

1,157,956,304.10

Starting from price of direct material costs, the total direct material for

processing eight centimeters was 53,970 kg times IDR 21,000 per kg as the

46

purchaseprice of rawmaterial set by owner in 2016 whichis IDR 1,133,370,000.00.

Then, total direct labor cost of sorting stick with cost IDR 140 per kg multiplied with

53,970 kg sorting stick material was IDR 7,555,800. For direct labor cost of

cinnamon slicer and assistant that wasIDR 183.33 per kg multiplied with 53,970 kg

of slicing material which result IDR 9,894,320.10. Then, for cost of direct labor of

cinnamon washers and assistants was IDR 150 per kg, then multiplied with 47,574.56

kg was IDR 7,136,184.00. Thus, researcher calculated total direct cost for eight

centimeters part resulted IDR 1,157,956,304.10 as total direct cost from sorting stick

step until drying activity.

Table 4.2 Calculation of direct cost grade A3/Am for size six centimeters.

Cost

Weight

(kg)

Cost per

kg (IDR) Total (IDR)

Purchase price of material

A3/Am

13,209

21,000.00 277,389,000.00

Payroll sorting stick

13,209

140.00 1,849,260.00

Payroll slicing

13,209

250.00 3,302,250.00

Payroll washing and drying

11,425.79

150.00 1,713,868.50

Total direct cost six

centimeters from sorting stick

until drying activity

284,254,378.50

47

For grade A3, calculation is done by 13,209 kg as the base for the processing

cinnamon cutts. The total direct material cost of six centimeters was 13,209 kg times

IDR 21,000 per kg which result IDR 277,389,000. Total direct labor cost of sorting

stickin six centimeters with cost price IDR 140 per kg then multiplied with 13,209 kg

of sorting stick cinnamon material which result IDR 1,849,260. For direct labor cost

of cinnamon slicer and assistant slicerwith cost IDR 250 per kg multiplied with

13,209 kg was IDR 3,302,250. Total cost of direct labor of cinnamon washers and

assistants washer was IDR 150 multiplied with 11,425.79 kg resulted IDR

1,713,868.50. Thus, researcher calculates total direct cost for six centimeters part

from calculate raw material until washing and drying process resulted IDR

284,254,378.50.

Table 4.3 Total direct costs from sorting cutts to packaging activity for cinnamon

cutts grade AA eight centimeters.

Cost

Weight

(kg)

Cost per


Payroll sorting cutts

23,478.46 450

10,565,307.00

Payroll cinnamon cutts

weigher

23,478.46 75

1,760,884.50

Payroll carton box packager

23,478.46 125

2,934,807.50

Total direct cost of grade AA

eight centimeters from sorting

cutts until packaging activity

15,260,999.00

48

Researcher has calculated total costs of direct material in sorting cutts and

packaging step per grade and size. From the result of sorting cut grade AA eight

centimeters, researcher calculated total direct labor costs of sorter cinnamon cutts

IDR 10,565,370.00 (23,478.46 kg times IDR 450). Direct labor cost of a weighter

who responsible in measurement weight per one kg is IDR 1,760,884.50 after total

sorting cutts AA eight centimeters per kg multiplied with the labor cost IDR 75 per

kg. Direct labor cost of carton box packager for AA eight centimeters resulted IDR

2,934,807.50 which came from total result of sorting cutt grade AA eight centimeters

times IDR 125 per kg. Total direct cost of grade AA eight centimeters from sorting

cutts to packaging activitywas IDR 15,260,990.00.

Table 4.4 Total direct costs from sorting cutts process to packaging process for

cinnamon cutts grade A/AA eight centimeters.

Cost Weight

(kg)

Cost per



8,138.29 450 3,662,230.50


weigher

8,138.29 75 610,371.75


8,138.29 125 1,017,286.25

Total direct cost of grade

A/AA eight centimeters

from sorting cutts until

5,289,888.50

49

packaging activity

From the result of sorting cinnamon cutts grade A/AA or quality two size eight

centimeters, researcher calculated total direct labor costs of sorter cut is IDR

3,662,230.50(8,138.29 kg times IDR 450). Direct labor cost of a weighterwasIDR

1.017.286,25 after total sorting cutts A/AA eight centimeters per kg multiplied with

the labor cost IDR 75 per kg. Direct labor cost of carton box packager for A/AA eight

centimeters resulted IDR 2,934,807.50 which came from total result of sorting cutt

grade A/AA eight centimeters times IDR 125 per kg. Total direct cost of grade A/AA

eight centimeters from sorting cutts to packaging process was IDR 5,289,888.50.

Table 4.5. Total direct costs from sorting cutts process to packaging process for

cinnamon cutts grade Am eight centimeters.

Cost

Weight

(kg) Cost per kg (IDR) Total (IDR)


2,065.72 450 929,573.45


weigher

2,065.72 75 154,928.91

Payroll carton box

packager

2,065.72 125 258,214.85


Am eight centimeters 1,342,717.20

50


packaging activity

From the result of sorting cut grade Am or quality three size eight centimeters,

researcher calculated total direct labor costs of sorter cut is IDR 929,573.45 (2,065.72

kg times IDR 450). Direct labor cost of a weighter was IDR 154,928.91 after total

sorting cinnamon cuts Am eight centimeters per kg multiplied with the labor cost

IDR 75 per kg. Direct labor cost of carton box packager for Am eight centimeters

resulted IDR 258,214.85 which came from total result of sorting cutt grade Am eight

centimeters times IDR 125 per kg. Total direct cost of grade Am eight centimeters

from sorting cutts to packaging process was IDR 1,342,717.20.

Table 4.6. Total direct costs from sorting cutts process to packaging process for

cinnamon cutts grade A/AA six centimeters.

Cost

Weight

(kg)

Cost per

Kg (IDR) Total (IDR)

Payroll sorting cuts

5,755.93 500

2,877,965.00


weigher

5,755.93 75

431,694.75

Payroll carton box

packager

5,755.93 175 1,007,287.75


A/AA six centimeters


4,316,947.50

51

packaging activity

From result of sorting cuts grade A/AA six centimeters, researcher calculated

total direct labor costs of sorter cutts resulted IDR 2,877,965.00 (5,755.93 kg times

IDR 500). The payroll cost of sorting cutts six centimeters was IDR 500 per kg

because to compiled one kilogram cinnamon cutts six centimeters took more time

than cinnamon cutts eight centimeters. Direct labor cost of aweighterwasIDR

431,694.75 after total sorting cutts grade A/AA six centimeters per kg multiplied with

the labor cost IDR 75 per kg. Direct labor cost of carton box packager for A/AA six

centimeters resulted IDR 1,007,287.75 which came from total result of sorting cutt

grade A/AA six centimeters times IDR 175 per kg. Total direct cost of grade A/AA

six centimeters from sorting cutts to packaging process was IDR 4,316,947.50.

Table 4.7 Total direct costs from sorting cutts process to packaging process for

cinnamon cutts grade Am six centimeters.

Cost

Weight

(kg)

Cost per

Kg (IDR) Total (IDR)

Payroll sorting cuts 2,027.76 500 1,013,880.00


weigher

2,027.76 75

152,082.00


2,027.76 175

354,858.00

52


Am six centimeters from

sorting cutts until packaging

activity

1,520,820.00

From result of sorting cutts grade Am six centimeters, researcher calculated

total direct labor costs of sorter cut resulted IDR 1.013.880,00 (2.027,76 kg times

IDR 500). Direct labor cost of a weighter was IDR 152.082,00 after total sorting cuts

grade Am six centimeters per kg multiplied with the labor cost IDR 75 per kg. Direct

labor cost of carton box packager for Am six centimeters resulted IDR 354.858,00

which came from total result of sorting cutt grade Am six centimeters times IDR 175

per kg. Total direct cost of grade Am six centimeters from sorting cutts to packaging

process was IDR 1.520.820,00.

4.3. Calculation of Overhead cost by Traditional Costing Method

Table 4.8 Overheads costs determined by CV. Alam Manis per one kilogram.

Cinnamon Production Overheads Cost per kg (IDR)

Sorting stick 15

Slicing 200

Washing and Drying 175

Sorting Cutts 600

Packaging 150

53

Production Supplies 750

Loss and Waste 1,050

Total 2,940

According to traditional costing has been used by Cv. Alam Manis, the total

overhead cost calculated in term of kg of inventory. In sorting stick process, the client

has allocated the cost IDR 15 per kg where the overheads involved cleaning, and

arrangement of inventory work in process slicing material for cinnamon slicing

process. In cinnamon slicing process, the client has set the overhead costs IDR 200

per kg because it involved the usage of slicing machines, setting the slicing machine,

the maintenance of slicing machine and granting the employee safety of cinnamon

slicers. In washing and drying process the cost of overhead in this part combined with

IDR 175 per kg which involve the usage of washing machine along with water supply

consumed, usage of gas-powered oven, washing machine maintenance, oven

maintenance, usage of washing protection gears, employee’s assistant in bring sliced

and dried to sorting cutts area, and wash area cleaning. In sorting cutts processthe

overheads cost determined in amount IDR 600 per kg which involved the usage of

light for sorting process, management of sorted cinnamon cutts per grade and size in

each location, along with inspection activity from director and owner to ensure the

sorting process followed according to cinnamon quality standard, and also cleaning

and area maintenance to ensure the finished good do not mix to each different grade

54

or size. For packaging process was already allocate with costs IDR 150 per kg which

included rechecking sorting cutts result and weight measurement for ensuring total

weight of finished goods per kg included total weight one kilogram of sorted

cinnamon cutts plus total weight of plastic packaging, and management in finished

goods storage arrangement per grade and size in carton box. The carton box had

already marked with same information in carton box and the content inside with color

of tape, color of strapping ribbon, and marker listed on carton box. For supply usage,

CV. Alam Manis had set the overhead costs with IDR 750 per kg, that include the

calculation of total application of production supply such as carton box, plastic

packaging, tape, strapping ribbon, cinnamon production daily report, grain sack,

cutter, and administrative office supplies. For cutting, loss and waste calculated by

with IDR 1,050 per kg where probability percentage of loss 5% as client set

multiplied with price of raw material per kg IDR 21,000. It means the client

calculated total raw material that in the end cannot be used for other production

process. From all calculation above,the overhead cost resulted with amount IDR

2,940 per kg according to traditional costing method.

55

Table 4.9 Allocation of overheads by CV. Alam Manis with traditional costing

method

From the information of total overheads per kg before, researcher has found

that allocation total costs of overhead per labor hour and machine hours as followed.

Researcherand client considered in each day that Cv. AlamManis has processed 800

kg inventories in averageperday. For total traditional overhead costs per one day

resulted IDR 2,352,000 where IDR 2,940 times 800 kg. From the total overhead,

researcher had contributed the total overhead for each production step as followed.

Sorting stick process has overhead cost per day with total IDR 176,400 or 7.5% of the

overhead allocation. Slicing process has overhead cost per day with IDR 764,400 or

32.5% of the overhead allocation. Washing process has overhead cost per day with

IDR 588,000 or 25% of the overhead allocation. Drying process has overhead cost

per day with IDR 294,000 or 12.5% of the overhead allocation. Sorting cutts process

has overhead cost per day with IDR 176,400 or 7.5% of the overhead allocation.

Packaging has overhead cost per day with IDR 352,800 or 15%.

Production stepsOverhead per

dayLabor hour Machine Hour OH per hour % allocation

Sorting Stick (8) 176.400 8 22.050 7.5%

Slicing (7) 764.400 7 109.200 32.5%

Washing (6) 588.000 6 98.000 25%

Drying (6) 294.000 6 49.000 12.5%

Sorting Cutts (8) 176.400 8 22.050 7.5%

Packaging (7) 352.800 7 50.400 15%

Total 2.352.000 100%

56

From the contribution above, researcher gathered overhead costs per laborhour

or machine hour per production process. For sorting stick process and sorting cutts

process, overhead costs per labor hour was IDR 22,050 for each. For slicing process,

overhead costs per machine hour was IDR 109,200. For washing process, overhead

costs per machine hour was IDR 98,000. For drying process, overhead costs per labor

hour was IDR 49,000. For packaging process, overhead costs per labor hour was IDR

50,400.

Table 4.10: Actual workhours consumed for processing 70,000 kg raw material

From following actual workhour needed to complete 70,000 Kg of raw material

that has been shown in table 4.10, researcher calculated the total overhead costs in

traditional methods as follow where total actual workhour per division times

overhead costs per labor hour or machine hour per division.

DLH/MH Activities January February March April Mei Total

DLH Sorting Stick (8) 192 168 176 200 0 736

MH Slicing (7) 176 168 192 200 48 784

MH Washing (6) 176 176 192 192 64 800

DLH Drying (6) 176 176 192 192 64 800

DLH Sorting Cutts (8) 184 168 192 184 32 760

DLH Packaging (7) 192 160 192 184 32 760

57

Table 4.11 Calculation of Overhead by traditional methods in CV. Alam Manis.

Production

Process

January

(IDR)

February

(IDR)

March

(IDR)

April

(IDR)

May

(IDR)

Total (IDR)

Sorting

Stick

4,233,600 3,704,400 3,880,800 4,410,000 0 16,228,800

Slicing 16,816,80

0

16,052,40

0

18,345,60

0

19,110,00

0

4,586,400 74,911,200

Washing 12,936,00

0

12,936,00

0

14,112,00

0

14,112,00

0

4,704,000 58,800,000

Drying 6,468,000 6,468,000 7,056,000 7,056,000 2,352,000 29,400,000

Sorting

Cutts

4,057,200 3,704,400 4,233,600 4,057,200 705,600 16,758,000

Packaging 8,467,200 7,056,000 8,467,200 8,114,400 1,411,200 33,516,000

Total 52,978,80

0

49,921,20

0

56,095,20

0

56,859,60

0

13,759,20

0

229,614,000

From calculation in the table present that total overhead costs in traditional

costing method was IDR 229,614,000 for processing 70,000 Kg sample raw material.

The result of overhead per period and per production process came from actual work

hours consumed times overhead costs per hour. For example, in sorting stick process

at January, the IDR 4,233,600.00 total overhead cost comes from 192 actual labor

hours times IDR 22,050 of overhead cost per labor hour in sorting stick activity.

58

4.4. Calculation Total Production Cost for Each Grade and Size by

Traditional Costing Method

Table 4.12: Total production cost of cinnamon cutts AA eight centimeters by

traditional method

Cost under traditional

method Cost per IDR Percentages Total per IDR

Total direct cost from

sorting stick until drying

activity at eight centimeters

part for grade AA

1,157,956,304.10 58.42%

676,478,072.86

Total direct cost AA eight

centimeters from sorting

cutts until packaging

activities

15,260,999.00 100.00%

15,260,999.00

Traditional overheads cost

for grade AA eight

centimeters

229,614,000.00 33.54%

77,012,535.60

Total production cost grade

AA eight centimeters

excluding market rate grade

AA

768,751,607.46

Total production cost of

cinnamon cutts grade AA

eight centimeters including

market rate grade AA

768,751,607.46 138.21%

1,062,491,596.66

59

To determine total direct cost of processing cinnamon cutts eight centimeters

part for cinnamon cutts grade AA eight centimeters, percentages of direct cost

allocation for cinnamon cutts grade AA eight centimeters determined from total kg of

cinnamon cutts grade AA eight centimeters per total overall cinnamon cutts eight

centimeters (23,478.46 kg of total cinnamon cutts grade AA eight centimeters

produced per 40,189.08 kg as total overall cinnamon cutts eight centimeters resulted

58.42%). For overhead allocation for cinnamon cutts grade AA eight centimeters, the

percentage overhead allocation was coming from total cinnamon cutts grade AA eight

centimeters produced per 70,000 kg as total raw material sample has been used by

33.54%. The total production costs for cinnamon cutts grade AA eight centimeters

was IDR 768,753,120.18 where the production cost was not including price rate of

cinnamon grade AA applied at January 2016 to June 2016. If price market rate of

cinnamon grade AA included was 38.21% from calculation of cinnamon grade ratio,

so total production costs of cinnamon cutts grade AA eight centimeters after included

price rate of cinnamon grade AA resulted IDR 1,062,491,596.66. The price market

rate of cinnamon grade AA comes from ratio of grade AA to grade A/AA and to

grade Am applied in 2016 was 47:41:35. From the grade ratio applied in 2016,

researcher gathered rate for grade AA was 38.21%, for grade A/AA was 33.33%, and

for grade Am was 28.46%

60

Table 4.13 Total production cost of cinnamon cutts A/AA eight centimeters by

traditonal method






part for grade A/AA

1,157,956,304.10 20.25%

234,486,151.58

Total direct cost A/AA eight



activities

5,289,888.50 100.00%

5,289,888.50


for grade A/AA eight

centimeters

229,614,000.00 11.63%

26,704,108.20




A/AA

266,480,148.28


cinnamon cutts grade A/AA

eight centimeters including

market rate grade A/AA

266,480,148.28 133.33%

355,297,981.70

The total direct cost of processing cinnamon cutts eight centimeters part for

cinnamon cutts grade A/AA eight centimeters calculated as follow. Percentages of

direct cost allocation for cinnamon cutts grade A/AA eight centimeters determined

61

from total kg of cinnamon cutts grade A/AA centimeters per total overall cinnamon

cutts 8 cm (8,138.29 kg of total cinnamon cutts grade A/AA centimeters produced per

40,189.08 Kg as total overall cinnamon cutts eight centimeters resulted 20.25%). For

overhead allocation for cinnamon cutts grade A/AA eight centimeters, the percentage

overhead allocation was coming from total cinnamon cutts grade A/AA eight

centimeters produced per 70,000 kg as total raw material sample has been used

resulted 11.63%. The total production costs for cinnamon cutts grade A/AA eight

centimeters was IDR 266,480,148.28 where the production cost was not including

price rate of cinnamon grade A/AA applied at January 2016 to June 2016. If price

rate of cinnamon grade A/AA included was 33.33% from calculation of cinnamon

grade ratio, so total production costs of cinnamon cutts grade A/AA eight centimeters

after included price rate of cinnamon grade A/AA resulted IDR355,297,981.70.

Table 4.14: Total production cost of cinnamon cutts Am eight centimeters by

traditional method






part for grade Am

1,157,956,304.10 5.14%

59,518,954.03

Total direct cost Am eight



1,342.717,20 100,00%

1.342.717,20

62

activities


for grade Am eight

centimeters

229.614.000,00 2,95%

6.773.613,00


Am eight centimeters


Am

67.635.284,23


cinnamon cutts grade eight

centimeters including

market rate grade Am

67.635.284,23 128,46%

86.884.286,12

For the total direct cost eight centimeters for grade Am, percentages of direct

cost allocation for cinnamon cutts grade Am eight centimeters determined from total

kilogramof cinnamon cutts grade Am eight centimeters per total overall cinnamon

cutts centimeters (2,065.72 kg of total cinnamon cutts grade Ameight centimeters

produced per 40,189.08 kg as total overall cinnamon cutts eight centimeters resulted

5.14%). For overhead allocation for cinnamon cutts grade Ameight centimeters, the

percentage overhead allocation was coming from total cinnamon cutts grade Ameight

centimeters produced per 70,000 kg as total raw material sample has been used

resulted 2.95%. The total production costs for cinnamon cutts grade Ameight


price rate of cinnamon grade Am applied at January 2016 to June 2016. If price rate

63

of cinnamon grade Am included was 28.46% from calculation of cinnamon grade

ratio, so total production costs of cinnamon cutts grade A/AA eight centimeters after

included price rate of cinnamon grade Am resulted IDR 86.884.125,41.

Table 4.15: Total production cost of cinnamon cutts A/AA six centimeters by

traditional method

Cost under traditional method Cost per IDR Percentages Total per IDR

Total direct cost from sorting

stick until drying activity at six

centimeters part for grade

A/AA

284.254.378,50

61,54%

174.930.144,53

Total direct cost A/AA six

centimeters from sorting cutts

until packaging activities

4.316.947,50

100,00%

4.316.947,50

Traditional overheads cost for

grade A/AA six centimeters

229.614.000,00

8,22%

18.874.270,80




A/AA

198.121.362,83


cinnamon cutts grade A/AA

six centimeters including


198.121.362,83

133,33%

264.155.213,06

64

To determine total direct cost of processing cinnamon cutts six centimeters part

for cinnamon cutts grade A/AA six centimeters, percentages of direct cost allocation

for cinnamon cutts grade A/AA six centimeters determined from total kilogram, of

cinnamon cutts grade A/AA six centimeters per total overall cinnamon cutts six

centimeters (5.755,93 kg of total cinnamon cutts grade A/AA six centimeters

produced per 9.353,15 kg as total overall cinnamon cutts six centimeters resulted

61.54%). For overhead allocation for cinnamon cutts grade A/AA six centimeters,

the percentage overhead allocation was coming from total cinnamon cutts grade

A/AA six centimeters produced per 70,000 kg as total raw material sample has been

used resulted 8.22%. The total production costs for cinnamon cutts grade A/AA


price rate of cinnamon grade A/AA applied at January 2016 to June 2016. If price

rate of cinnamon grade A/AA included was 33.33% from calculation of cinnamon

grade ratio, so total production costs of cinnamon cutts grade A/AA six centimeters

after included price rate of cinnamon grade A/AA resulted IDR 264,155,213.06.

Table 4.16: Total production cost of cinnamon cutts Am six centimeters by traditional

method



Total direct cost from sorting

stick until drying activity at

six centimeters part for grade

284.254.378,50 21,68%

61.626.349,26

65

Am

Total direct cost Am six



activities

1.520.820,00 100,00%

1.520.820,00


for grade Am six centimeters

229.614.000,00 2,90%

6.658.806,00


Am six centimeters


Am

69.805.975,26


cinnamon cutts grade Am six

centimeters including market

rate grade Am

69.805.975,26 128,46%

89.672.755,82

To find total direct cost of processing cinnamon cutts six centimeters part for

cinnamon cutts grade Am centimeters, percentages of direct cost allocation for

cinnamon cutts grade Am six centimeters determined from total kg of cinnamon cutts

grade Am six centimeters per total overall cinnamon cutts six centimeters (2,027.76

kg of total cinnamon cutts grade Am centimeters produced per 9.353,15 kg as total

overall cinnamon cutts six centimeters resulted 21.68%). For overhead allocation for

cinnamon cutts grade Am six centimeters, the percentage overhead allocation was

coming from total cinnamon cutts grade Am six centimeters produced per 70,000 kg

66

as total raw material sample has been used resulted 2.90%. The total production costs

for cinnamon cutts grade Amsix centimeters was IDR 69,805,975.26 where the

production cost was not including price rate of cinnamon grade Am applied at

January 2016 to June 2016. If price rate of cinnamon grade Am included was 28.46%

from calculation of cinnamon grade ratio, so total production costs of cinnamon cutts

grade Am six centimeters after included price rate of cinnamon grade Am resulted

IDR 89,672,755.82.

4.5. Calculation of Overhead Cost by Activity Based Costing Method

Researcher had executed interview session to director of Cv. Alam Manis, Mr.

Jerry Wijaya with owner’s permission within interview session, researcher asked to

the director about what is activities had been done outside each production process

responsibility by director and employees. Researcher also questioned him about what

kind equipments that helped director and employee in done their each jobs,and

resources needed to operate those equipments. After questioning about media and

resource support, researcher asked to the director about how long each job and media

usage in hours per day and expected result from performed jobs outside the

production. From the interview, researcher had determined activities identification,

resource usage, and equipment support identification, resource driver identification,

potential activities driver, and potential cost object identification. From the result of

67

interview, researcher created activity dictionary consist of lists of activities with its

each activity description, activity typed, cost object, and activity driver.

From the interview result, researcher found that activities have been done by

employee outside each their own responsibilities were a setup machine and work

place cleaning. Director has been done daily inspection per production process and

daily production result recording. Director has CCTV for monitored employee’s work

per production area. Employees have been supported with slicing machine for

employee responsible in slicing cinnamon, washing machine for employee

responsible in washing cinnamon, strapping machine for employee responsible in

packaging. Director and employees also use light and air conditioner for cosiness

during work hours. Production machines and other general items use electricity as the

energy resource.

Resource driver identification information from the interview received as

followed. Inspection activity has been done by director in average four hours per day.

Production result recording has been done by director twice per day at 11.00 AM and

3,00 PM generally. Machine setups has been done three times per day where each

production machine received one time setup per day. Work place cleaning has been

done by each employee after they have done work at 4.00 PM and in average took 30

minutes per day. Machine usages like slicing machine, washing machine, strapping

machine, and general usage media has own consuming hour per day. Slicing machine

has been used in average seven hours per day, washing machine has been used in

average six hours per day, strapping machine that has been used in average twohours,

68

and general media like lights, air conditioner, and CCTV has been used eight hours

full per day.

Researcher has been asked to director about determine value of each activity

involved. About potential activity driver, researcher concluded that inspection activity

involved time hours amount that director has been done in inspection activities. For

production result recording based on how often director has been done recording of

production result. In machine setups based on how often employee in responsible has

been done setup machines. For work place cleaning activity has involved labor hours

consumed to clean production area after production activity. For machine usage

determined by total machine hours consumed per machine production and general

usage.

Researcher also asked director about what would be got from those activities.

From inspection activity, director gathered data about employee performance

generally record and machine performance examination record. It also involved

inventory count and condition record per level such as raw material inventory, slicing

material inventory, washing material inventory, sorting cuts material inventory, and

finished goods of cinnamon cuts. From inspection activity also received production

supply count and condition record, and work field condition note. From production

result recording activity, director received each employee work per production

activity record. It was also including total weight of cinnamon processed per

production process per working day. In machine setups activity, director gathered

information about how many time of setup to each production machine has been done

69

by employee in responsible. In work place cleaning activity, director gathered

information about how much hour passed for perform work place cleaning. In

machine usage activity, director gathered information about how much machine hours

consumed per production machine and general usage. From interview result

conducted by researcher, activities dictionary has been done with information type of

activity, activity description, activity type, cost object, and activity driver as below.

70

Table 4.17 Activities dictionary for overhead cost calculation according to

activity based costing method.

Activity

Name Act. Description

Activity

Type Cost Object

Activity

Driver

Inspection

Employee performance

evaluation

Secondary

Production

workplace

Inspection

hours

Machines performance

evaluation

Employee

performance

Inventory examination Inventory

records

Production supply

examination

Production

supply record

Work place examination Work place area

Production

result

recording

Write down each employee's

work and result per day Primary

Employee

performance

Times of

recording

Machine

setups

Setting slicing machine

according to material used

and demanded size

Primary Production

Machines

Times of

Setups

Setting Washing machine

power and water supply

checking

Setting strapping machine

with selected strapping

ribbon and adjusted heat

power

Work place

cleaning

Cleaning work place after

perform production process Primary

production work

place Labor hour

Machine

usage

Recording usage of

production machine like

slicing machine, washing

machine, strapping machine,

and other supportive media

Primary Production

Machines

Machine

Hours

71

To determine allocation of overhead cost based on activity based costing

method, researcher determine overhead allocation based on percentage of time

consumed in most for director and employee. In table 4.18, Director received salary

for inspection and production result recording for IDR 200,000. For employee, owner

allocated budget for machine setup and work place cleaning with IDR 100,000.

Inspection activity has been allocated with 90% of time consumption and total salary

for inspection activity has been resulted IDR 180,000. The IDR 180,000 came from

IDR 200,000 as beginning budget for director times 90% as time percentage

consumed. In production result recording budget has been calculated by amount IDR

20,000 for director. In machine setups, budget has been calculated by amount IDR

20,000 for employee in responsible. In work place budget has been calculated by

amount IDR 80,000 for employees who has been participated.

Table 4.18 Percentage of time for each activity and budget allocation.

Position

Salary

beginning

% time

allocation Activities

Salary allocation

(IDR)

Director 200,000 90% Inspection 180,000

10%

Production

result recording 20,000

Employee 100,000 20% Machine setups 20,000

80%

Work place

cleaning 80,000

72

Machine and media support budget have been allocated by owner with total

cost IDR 50,000 per day.According to each own usage hour, each production

machine and general usage has overhead cost allocation per day. The information of

overhead allocation presented in table 4.19 as below.

Table 4.19 Allocation of machine and media support usage.

Machine and media support allocation per day 50.000

Machines and media support usage hours % Total per day (IDR)

Slicing Machine 7 30,43% 15.217,39

Washing Machine 6 26,09% 13.043,48

Strapping Machine 2 8,70% 4.347,83

General usage* 8 34,78% 17.391,30

Total 23 100% 50.000

Note: the example of general usage like lighting, air conditioner, and CCTV

Machine setup has been allocated by owner with total cost IDR 20,000 per day.

According to each own setup time, each time setup budget allocation has own

overhead allocation per day. The information of overhead allocation presented in

table 4.20 as below.

73

Table 4.20 Allocation of machine setups.

Machine setups Times of setups %

Allocation cost

(IDR)

Slicing Machine 1 33% 6.667

Washing Machine 1 33% 6.667

Strapping

Machine 1 33% 6.667

100% 20.000

Researcher gathered all allocated overhead cost per activity and calculated total

overhead cost per activity where each cost calculated per one day. Each activity also

compared with actual work days that used to processing 70,000 Kg raw material

sample. For inspection, production recording, machine setups, work place cleaning,

and machine usage cost driver information came from activities dictionary. Usage of

packaging supply part along with waste and loss cost driver came from direct tracing

by owner and director. Result of total overhead cost according to activity based

costing method presented in table 4.21 with total IDR 77.270.729, 92.

74

Table 4.21 Calculation of overhead cost based by ABC methods from activity

dictionary.

75

ActivitiesCost driver unit

Cost driver per

actual work days

Cost driver per

day (IDR)

Total OH

costSource

InspectionInspection hours

100

180.000

18.000.000,00

Activity Dictionary

Production result recordingTimes of recording

100

20.000

2.000.000,00

Activity Dictionary

Slicing machine SetupsTimes of setup

98

6.667

653.333,33

Activity Dictionary

Washing machine setups

Times of setup100

6.667

666.666,67

Activity Dictionary

Strapping machine setupsTimes of setup

95

6.667

633.333,33

Activity Dictionary

Work place cleaning

Labor hour50

80.000

4.000.000,00

Activity Dictionary

Slicing machine usageM

achine hour98

15.217

1.491.304,35

Activity Dictionary

Washing machine usage

Machine hour

100

13.043

1.304.347,83

Activity Dictionary

Strapping machine usageM

achine hour95

4.348

413.043,48

Activity Dictionary

General production usageM

achine hour100

17.391

1.739.130,43

Activity Dictionary

Packaging supplyInventory per K

g41.446

750

31.084.500,00

Direct tracing

Waste and loss resulted

Inventory per Kg

14.557,21

1.050

15.285.070,50

Direct tracing

Total77.270.729,92

Info:

Total Kg at packaging supply determ

ined from total finished goods cinnam

ons cutts produced from sam

ple

Work place cleaning has been done in 100 days full w

here each day takes 0.5 hours

Actual slicing activity has been done in 98 days

Actual w

ashing activity has been done in 100 days

Actual packaging activity has been done in 95 days

Total Kg at w

aste and loss resulted from all w

aste and loss in sorting cinnamon stick process, slicing process,

drying process, and sorting cinnamon cutts process.

76

4.6. Total Production Cost under ABC Method

Table 4.22: Total production cost of cinnamon cutts AA eight centimeters according

to ABC method

Cost under ABC method Cost per IDR Percentages Total per IDR



activity at eight


AA

1.157.956.304,10 58,42%

676.478.072,86

Total direct cost AA eight



activities

15.260.999,00 100,00%

15.260.999,00

ABC overheads cost for

grade AA eight

centimeters

77.270.730,00 33,54%

25.916.602,84

Total production cost

grade AA eight

centimeters excluding


717.655.674,70


cinnamon cutts grade AA

eightcentimeters including


717.655.674,70 138,21%

991.871.908,00

77

After overhead cost according ABC method determined, the total overhead cost

applied in calculation of total production cinnamon cutts cost per grade and size as

same as traditional costing calculation before. Total production cost of cinnamon

cutts grade AA eight centimeters according to ABC method is IDR 991,872,611.55.

Table 4.23. Total production cost of cinnamon cutts A/AA eight centimeters

according to ABC method




activity at eight


A/AA

1.157.956.304,10 20,25%

234.486.151,58

Total direct cost A/AA

eight centimeters from

sorting cutts until

packaging activities

5.289.888,50 100,00%

5.289.888,50

ABC Overheads cost for

grade A/AA eight

centimeters

77.270.730,00 11,63%

8.986.585,90


grade A/AA eight



248.762.625,98


cinnamon cutts grade


including market rate

266.480.148,28 133,33%

331.675.209,22

78

grade A/AA

The calculation of production cost cinnamon cutts grade A/AA according to

ABC method apply same calculation from traditional costing method version but with

different value of overhead costs. Thus, total production cost of cinnamon cutts grade

A/AA eight centimeters according to ABC method is IDR 331,671,219.07.

Table 4.24. Total production cost of cinnamon cutts Am eight centimeters according

to ABC method




activity at eight


Am

1.157.956.304,10 5,14%

59.518.954,03

Total direct cost Am

eight centimeters from

sorting cutts until


1.342.717,20 100,00%

1.342.717,20


grade Am eight

centimeters

77.270.730,00 2,95%

2.279.486,54


grade Am eight


63.141.157,77

79



cinnamon cutts grade Am

eight centimeters


grade Am

63.141.157,77 128,46%

81.111.131,27

After overhead cost according ABC method determined, the total production

cost of cinnamon cutts grade Am calculated as same way as traditional costing

calculation before but with different overheada value. Total production cost of

cinnamon cutts grade Am eight centimeters according to ABC method is IDR

81,109,173.07

Table 4.25. Total production cost of cinnamon cutts A/AA six centimeters according

to ABC method




activity at six centimeters

part for grade A/AA

284.254.378,50 61,54%

174.930.144,53

Total direct cost A/AA 6

cm from sorting cutts until


4.316.947,50 100,00%

4.316.947,50


grade A/AA six 77.270.730,00 8,22% 6.351.654,01

80

centimeters


grade A/AA six



185.598.746,03

Total production costof

cinnamon cutts grade



grade A/AA

185.598.746,03 133,33%

247.458.808,09

The calculation of costing cinnamon cutts grade A/AA six centimeters

production applied as same as traditional costing but with different value of

overheads. Total production cost of cinnamon cutts grade A/AA six centimeters

according to ABC method is IDR 247,461,644.26.

Table 4.26. Total production cost of cinnamon cutts Am 6 cm according to ABC

method




activity at six centimeters

part for grade Am

284.254.378,50 21,68%

61.626.349,26

Total direct cost Am six



1.520.820,00 100,00%

1.520.820,00

81

activities


grade Am six centimeters

77.270.730,00 2,90%

2.240.851,17


grade Am six centimeters

excluding market rate

grade Am

65.388.020,43


cinnamon cutts grade Am

six centimeters including


65.388.020,43 128,46%

83.997.451,04

The calculation of production cost cinnamon cutts grade Am six centimeters

according to ABC method apply same calculation from traditional costing method

version but with different value of overhead costs. Total production cost of cinnamon

cutts grade Am six centimeters according to ABC method is IDR 83,991,194.84.

4.7.Pricing Methods Application of Cinnamon Cutts

Researcher has two pricing methods that would be used to determine selling

price of cinnamon cutts grade AA eight centimeters. Cinnamon cutts grade AA eight

centimeters selected as object for pricing decision because the product was the most

ordered products at January 2016 up to June 2016. The two pricing methods selected

by researcher named cost plus pricing and mark up pricing. Cost plus pricing method

82

used percentage margin profit as base for calculation selling price per kg. Mark up

pricing method used direct profit amount per kg of finished goods. Researcher would

be compared the result of pricing methods mentioned to client’s own selling price

setting of cinnamon cutts grade AA eight centimeters.

If cost plus pricing method would be used, by using total production cost of

cinnamon cutts grade AA eight centimeters in traditional costing method and ABC

method with margin profit 15%, the result as followed. For traditional costing method

version, total target profit needed to reach is IDR 1,062,491,596.66 times 115%

resulted IDR 1,221,865,336.16 in total with its selling price IDR 52.041,97 per kg

(IDR 1,221,865,336.16 per 23,478.46 kg). For ABC method version, total target

profit needed to reach is IDR 991.871.908,00 times 115% resulted IDR

1.140.652.694,20 in total with its selling price IDR 48.582,94 per kg (IDR

1.140.652.694,20 per 23,478.46 kg).

If mark up pricing method has been applied by using total production cost of

cinnamon cutts grade AA eight centimeters in both traditional costing method and

ABC methodwith margin profit IDR 3,000 per kg finished goods, the result would be

as followed. For traditional costing method version, the selling price would be IDR

1.062.491.596,66 divided with total finished goods of cinnamon cutts grade AA eight

centimeters 23,478.46 kg ,then added by IDR 3,000 as profit resulted IDR 48.253,89

per kg. For ABC method, the selling price would be IDR 991.871.908,00 per total

finished goods of cinnamon cutts grade AA eight centimeters 23,478.46 kg, then

added by IDR 3,000 as profit resulted IDR 45.246,04 per kg.

83

According to the client, director and owner defined the selling price of

cinnamon cut based on both owner and director’s forecast of commodity market price

of cinnamon per grade quality. If researher followed selling price setting from the

client at January 2016 up to June 2016, the selling price of cinnamon cutts eight

centimeters explained as followed. At January 2016, the selling price of cinnamon

cutts eight centimeters was IDR 50,000 per kg, at February 2016 was IDR 45,250 per

kg, at March 2016 was IDR 47,000 per kg,at April 2016, was IDR 46,500 per kg,at

May 2016, was IDR 48,750 per kg, andat June 2016 was IDR 45,250 per kg.

According to selling price cinnamon cutts eight centimeters from January 2016 to

June 2016, the average of selling price in last six months was IDR 47.125,00 per kg.

Pricing decision from client considered selling price offer from buyers, purchase

price of raw material from suppliers, and total production cost has been occured

inside of the business. Cv. Alam Manis would be accepted purchase contract of

cinnamon cutts grade AA eight centimeters if the offer has price range minimum IDR

45,000 up to IDR 50,000 or more depends on purchase price of raw materials from

supplier and availablity of finished goods cinnamon cutts grade AA eight centimeters

stocks.

84

4.8. Difficulties and Practices

While doing the research, there lies some problem arise regarding the system

and procedure in the company. The problems can be define as follow:

During costing on cinnamon cutts product, there was no summary record of

total cinnnamon processed and produced from purchasing raw material until finished

goods resulted including total waste/loss resulted over six months per suppliers. The

company should have calculate total all raw material purchased in terms of weight

and price per suppliers to see how much cinnamon cutts can produced and how much

waste/loss occur due to moisture content and scraps inside the raw material as

company’s record file. It was happened due to lack of workforce to be given in

responsible to calculate total overall total raw material, total work in process per step

production and total finished goods in weight and prices. Then because there was lack

of document evidence represent raw material’s coming from, it is hard to evaluate by

researcher. If this is still ignored, the owner do not know how much actual total gain

or loss from purchasing raw materials processed into finished goods. There will be no

record that can be used as comparison material cost to calculate total cost should be

spent inside the production.

During processing raw material sample in sorting stick, work in process

inventory of sorting stick which will used as sample has been mixed up with other

non sample work in process inventory of sorting stick. The sample of sorting stick

must be placed in designed location without mixed up with other material and

85

director demanded to keep on eye the sample result processed until the end of

processing per day until all raw material sample processed. It was happened because

the owner was absent and there was many income raw material queued and director

was full in hand during handled income raw material. Then, researcher observe

sample processing in sorting stick area, slicing area, washing area, drying area,

sorting cutt area, and packaging area per hour for each area without deeper recheck

on each work area. If that condition keep happened, the amount resulted from slicing

activity until packaging would be mismatch to actual amount of raw material sample.

To avoid such problems appears, researcher provided recommendation relate to

each problem risen as follow. At first problem, the owner should hire assistant

director to assist calculate and record all raw material purchase transaction while

director can overwatch production process and calculate total production in each steps

produced. By using manufacture accounting software for cinnamon processing

activities to help monitor total inventories in kg per steps and total cost occured per

steps as well. In second problem, researcher suggested owner, director, and himself

keep focus on each production activity and location of each work in process inventory

for sample. Three of them keep in track of sample processing until all sample

processed into finished goods.

86

CHAPTER V

CONCLUSION AND RECOMMENDATION

5.1. Conclusion

Table 5.1. Comparison of costing methods in cinnamon cutts product per grade and

size

Cinnamon

Cutts Product

Total Production cost (IDR) Differences

Traditional ABC

AA 8 cm 1.062.491.596,66 991.871.908,00 70.619.688,66

A/AA 8 cm 355.297.981,70 331.675.209,22 23.622.772,48

Am 8 cm 86.884.286,12 81.111.131,27 5.773.154,86

A/AA 6 cm 264.155.213,06 247.458.808,09 16.696.404,97

Am 6 cm 89.672.755,82 83.997.451,04 5.675.304,77

Total 1.858.501.833,37 1.736.114.507,61 122.387.325,75

From table 5.1 above, researcher conclude that ABC method grants less

production costs. By applied ABC method, the production cinnamon cutts cost

overall can save up IDR 122.387.325,75.

87

Table 5.2. Comparison of Pricing methods result using cinnamon cutts grade AA 8

cm as the sample

From table 5.2, according to cost plus pricing method, the selling price of

cinnamon cutts AA eight centimeters from traditional costing method was IDR

52,041.97 per kg. In the same pricing method, selling price of cinnamon cutt grade

AA eight centimetersfrom ABC method was IDR 48,582.94. In mark-up pricing

method based on traditional costing method, the selling price was IDR 48,253.89 per

kg and based on ABC method was IDR 45,246.04. According to demand based which

calculated from data sales average of last six months of cinnamon cutts grade AA

eight centimeters by Cv. Alam Manis, the selling price was IDR 47,125 per kg. From

the table above, researcher conclude client should set selling price of cinnamon cutts

grade AA eight centimeters with range around IDR 48,500 to IDR 45,000 if

following market’s demand at that time.

5.2. Recommendation

Researcher has several recommendations to support Cv. Alam Manis in order to

provide more efficiency and quality production such as:

Cost plus pricing (15%) Mark up pricing (+ IDR 3,000) Market based pricing

Traditional 52.041,97 48.253,89 47.125

ABC 48.582,94 45.246,04 47.125

Selling price of cinnamon cutts grade AA 8 cm

88

1. Cv. Alam Manis should apply ABC methods for more efficient overhead

costing because from the calculation provide less overhead cost than

traditional one. To apply ABC methods, owner and director re-evaluate main

activities in production of cinnamon cuttsthat are only give main influence

on inventory quality result such as do inspection and machine maintenance

as part of the overhead cost.

2. Owner and director should provide charts of cinnamon price per grade per

period as guidance of base price to determine selling price cinnamon per

grade and size per kg. It also useful to predict the selling price of cinnamon

cutts in the next period.

5.3. Limitation

This research has several aspects that not included in calculation of production

cost of cinnamon cuts product such as:

a) The calculation was not including depreciation of warehouse building,

production equipment. It is because client did not know about fair value of

warehouse building and the production equipments are custom made by client

himself that has no fair value references.

b) The calculation is limited to processing of 70,000 kg raw material sample of

cinnamon that comes from various suppliers. The moisture value was already

included to price setting of cinnamon raw material purchase.

89

REFERENCES

Averkamp, H. (2018). Introduction of Activity Based Costing. Retrieved from

https://www.accounting coach.com/ activity-based-costing/ explanation,

accessed 4th January 2018

Bragg, S. (2013). Costing Definition. Retrieved from

https://www.accountingtools.com/articles/what-is-costing.html, accessed

5th January 2018

Citra Cendekia Indonesia, (2016). Produk Kayu Manis Indonesia Diminati

Pasar Internasional (Bizteka). Retrieved from http://cci-

indonesia.com/2016/10/14/produk-kayu-manis-indonesia-diminati-pasar-

internasional/ accessed 5th January 2018

Collins Dictionary of Business, (2018). Demand-based pricing. Retrieved from

https://financial-dictionary.thefreedictionary.com/ demand-based+pricing


Horngren, C. T., Datar, S. M. & Rajan, M.V. (2015) .Cost accounting. New

York, NY: Pearson.

Jan, O. (2013). Cost Plus Pricing. Retreived from

http://accountingexplained.com/managerial/cvp-analysis/cost-plus-pricing


Jhonson, R. (2014) .Traditional Costing Vs. Activity-Based Costing. Retrieved

from http://smallbusiness.chron.com/traditional-costing-vs-activitybased-

costing-33724.html accessed 5th January 2018

Mahal, I. and Hossain, A. (2015). ABC (Activities Based Costing) –An Effective

Tools For Better Management. Retrieved from

https://www.researchgate.net/ publication /309398925 Activity Based

Costing_ABC_-_An_Effective_Tool_for_Better_Management accessed

12th January 2018

Wilkinson, J. (2013). Activity-based Costing (ABC) vs Traditional Costing.

Retrieved from https://strategiccfo.com/activity-based-costing-abc-vs-

traditional-costing/ accessed 6th January 2018

APPENDICES

Appendix 1 – Expenses list of CV. Alam Manis per kg

Table I.1 Summary of directs expenses and overhead in general at CV. Alam

Manis

Production Step Journal Account Cost

Cinnamon Sorting

Stick

Payroll – cinnamon stick

sorter

IDR 140/ Kg

Slicing Cinnamon Payroll – cinnamon slicers

with assistant of material 8 cm

IDR 183.33 / Kg

Slicing Cinnamon Payroll – cinnamon slicers

with assistant of material 6 cm

IDR 250 / Kg

Washing and

Drying

Payroll – Washers + washer

assistances

IDR 150 / Kg

Cinnamon Cutt

sorting cutts

Payroll – Cinnamon Cutt

sorter of material 8 cm

IDR 450/ Kg

Cinnamon Cutt

sorting cutts

Payroll – Cinnamon Cutt

sorter of material 6 cm

IDR 500/ Kg

Cinnamon plastic

packager payroll

Payroll – Cinnamon Packager IDR 125/ Kg

Cinnamon cartoon

box packager

payroll

Payroll – Cinnamon Packager

of material 6 cm

IDR 175. Kg

Cinnamon cartoon

box packager

payroll

Payroll – Cinnamon Packager

of material 8 cm

IDR 150/ Kg

Other Overhead cost IDR 2,940 / Kg

Appendix II – Table of 70,000 kg cinnamon sample processing

result

Table II.1: Sample 70,000 kg raw material cinnamon processing result

Form Total Kg

Raw material 70.000

WIP Sorted Stick AA/A3 A3/Am KBK Waste/Loss Total (kg)Total

Waste/Loss

Kg 53970 13209 1967 854 70.000 854

% 77,10% 18,87% 2,81% 1,22% 100,00%

WIP Sliced Cutt AA/A3 8 cm % AA/A3A3/Am 6

cm% A3/Am

Total

Cutting

Total Raw

Powder

Total

Waste/Loss

sliced 47.574,56 88,15% 11.425,79 86,50%

cutting 2.169,59 4,02% 763,48 5,78% 2.933,07

raw powder 1.921,33 3,56% 747,63 5,66% 2.668,96

waste/loss 2.304,52 4,27% 272,11 2,06% 2.576,62

53.970,00 100,00% 13.209,00 100,00%

WIP Wash and Dry AA/A3 8cm %A3/Am 6

cm%

Total

Waste/Loss

washed & dried 40.189,08 84,48% 9.353,15 81,86%

waste/Loss 7.385,47 15,52% 2.072,64 18,14% 9.458,11

47.574,56 100% 11.425,79 100%

FG Cinnamon cutts 8 cm % 6 cm %Total

cutting

Total Raw

Powder

Total

Waste/Loss

AA 23.478,46 58,42% - 0%

A/AA 8.138,29 20,25% 5.755,93 61,54%

Am 2.065,72 5,14% 2.027,76 21,68%

Cutting 5.059,81 12,59% 1.347,79 14,41% 6.407,59

Waste/Loss 1.446,81 3,60% 221,67 2,37% 1.668,48

total 40.189,08 100,00% 9.353,15 100,00% 9.340,67 2.668,96 14.557,21

Table II.2 Final result from processing 70,000 kg cinnamon raw material

Figure II.1 Final result of processing 70,000 kg sample raw material in pie chart

conclusion Kg %

AA 8 cm 23.478,46 33,54%

A/AA 8 cm 8.138,29 11,63%

Am 8 cm 2.065,72 2,95%

AA 6 cm - 0,00%

A/AA 6 cm 5.755,93 8,22%

Am 6 cm 2.027,76 2,90%

Cutting 9.340,67 13,34%

KBK 1.967,00 2,81%

Raw Powder 2.668,96 3,81%

Waste /Loss 14.557,21 20,80%

Total 70.000,000 100,00%

33%

12%

3%

8%3%

13%

3%

4%

21%

The Grade Result

AA 8 cm

A/AA 8 cm

Am 8 cm

A/AA 6 cm

Am 6 cm

Cutting

KBK

Raw Powder

Waste/Loss

Appendix IV - Summary Expenses from January 2016 to June 2016 CV.

Alam Manis

Table IV.1.Total cost of purchase raw material activity

Period Total Kg

Direct Material

Cost Total DM cost

Jan-16 18.018,0 20.000 360.360.000,00

Feb-16 22.032,0 21.415 471.815.280,00

Mar-16 24.873,0 21.657 538.674.561,00

Apr-16 11.035,0 21.480 237.031.800,00

Mei-16 27.942,5 20.803 581.287.827,50

Jun-16 41.922,5 20.846 873.916.435,00

Total 145.823,0 21.033,5 3.063.085.903,5

Table IV.2.Total cost of sorting stick activity

Period Total Kg

Direct Labor

cost Total DL cost

Jan-16 18.018,0 140 2.522.520,0

Feb-16 22.032,0 140 3.084.480,0

Mar-16 24.873,0 140 3.482.220,0

Apr-16 11.035,0 140 1.544.900,0

Mei-16 27.942,5 140 3.911.950,0

Jun-16 41.922,5 140 5.869.150,0

Total 145.823,0

20.415.220,0

Table IV.3. Total cost of slicing activity

Period Total Kg D Machine cost Total Direct Machine

Jan-16 18.018,0 233,33 4.204.139,9

Feb-16 22.032,0 233,33 5.140.726,6

Mar-16 24.873,0 233,33 5.803.617,1

Apr-16 11.035,0 233,33 2.574.796,6

Mei-16 27.942,5 233,33 6.519.823,5

Jun-16 41.922,5 233,33 9.781.776,9

145.823,0

34.024.880,6

Note: Cv. Alam Manis prepared 8 cm from January 2016 to June 2016

*IDR 183.33 from slicing machine + IDR 50 from labor

Table IV.4. Total cost of washing activity

Period Total Kg

D. Machine

cost

Total D Machine

cost

Jan-16 15.315,3 150 2.297.295,0

Feb-16 18.727,2 150 2.809.080,0

Mar-16 21.142,1 150 3.171.307,5

Apr-16 9.379,8 150 1.406.962,5

Mei-16 23.751,1 150 3.562.668,8

Jun-16 35.634,1 150 5.345.118,8

123.949,6 18.592.432,5

Note:

*IDR 100 Direct material + IDR 50 Direct labor =

150 per kg

Table IV.5. Total cost of drying activity

Period Total Kg D. Labor

cost Total D Labor

Jan-16 15.315,3 100 1.531.530,0

Feb-16 18.727,2 100 1.872.720,0

Mar-16 21.142,1 100 2.114.205,0

Apr-16 9.379,8 100 937.975,0

Mei-16 23.751,1 100 2.375.112,5

Jun-16 35.634,1 100 3.563.412,5

123.949,6 12.394.955,0

Table IV.6. Total cost of sorting cutts activity

Period Total Kg

D Labor

cost Total D labor Cost

Jan-16 13.018,0 400 5.207.202,0

Feb-16 15.918,1 400 6.367.248,0

Mar-16 17.970,7 400 7.188.297,0

Apr-16 7.972,8 400 3.189.115,0

Mei-16 20.188,5 400 8.075.382,5

Jun-16 30.289,0 400 12.115.602,5

105.357,1 42.142.847,0

Table IV.6. Total cost of sorting cutts activity

Period Total Kg Direct

Labor Cost Total Direct Labor Cost

Jan-16 11.065,3 150 1.659.795,6

Feb-16 13.530,4 150 2.029.560,3

Mar-16 15.275,1 150 2.291.269,7

Apr-16 6.776,9 150 1.016.530,4

Mei-16 17.160,2 150 2.574.028,2

Jun-16 25.745,7 150 3.861.848,3

89.553,5

13.433.032,5

Table IV.7. Total cost of lifting activity

Period Total Kg

Direct Labor

Cost

Total Direct

Labor Cost

Jan-16 18.018,0 25 450.450,0

Feb-16 22.032,0 25 550.800,0

Mar-16 24.873,0 25 621.825,0

Apr-16 11.035,0 25 275.875,0

Mei-16 27.942,5 25 698.562,5

Jun-16 41.922,5 25 1.048.062,5

Total 145.823,0 3.645.575,0

Table IV.8. Total cost of overheads

Period Total Kg Overhead Total Overhead

Jan-16 18.018,0 4.200 75.675.600,0

Feb-16 22.032,0 4.200 92.534.400,0

Mar-16 24.873,0 4.200 104.466.600,0

Apr-16 11.035,0 4.200 46.347.000,0

Mei-16 27.942,5 4.200 117.358.500,0

Jun-16 41.922,5 4.200 176.074.500,0

Total 145.823,0 612.456.600,0

Table IV.8. Total overall costs incurred inside CV. Alam Manis from

January 2016 until June 2016

Period Purchase RW Sorting Stick Slicing

Jan-16 360.360.000,00 2.522.520,00 4.204.139,94

Feb-16 471.815.280,00 3.084.480,00 5.140.726,56

Mar-16 538.674.561,00 3.482.220,00 5.803.617,09

Apr-16 237.031.800,00 1.544.900,00 2.574.796,55

Mei-16 581.287.827,50 3.911.950,00 6.519.823,53

Jun-16 873.916.435,00 5.869.150,00 9.781.776,93

Total 3.063.085.903,50 20.415.220,00 34.024.880,59

Period Washing Drying Sorting Cutt

Jan-16 2.297.295,00 1.531.530,00 5.207.202,00

Feb-16 2.809.080,00 1.872.720,00 6.367.248,00

Mar-16 3.171.307,50 2.114.205,00 7.188.297,00

Apr-16 1.406.962,50 937.975,00 3.189.115,00

Mei-16 3.562.668,75 2.375.112,50 8.075.382,50

Jun-16 5.345.118,75 3.563.412,50 12.115.602,50

Total 18.592.432,50 12.394.955,00 42.142.847,00

Period Packaging Lifting Overhead

Jan-16 1.659.795,64 450.450,00 75.675.600,00

Feb-16 2.029.560,30 550.800,00 92.534.400,00

Mar-16 2.291.269,67 621.825,00 104.466.600,00

Apr-16 1.016.530,41 275.875,00 46.347.000,00

Mei-16 2.574.028,17 698.562,50 117.358.500,00

Jun-16 3.861.848,30 1.048.062,50 176.074.500,00

Total 13.433.032,48 3.645.575,00 612.456.600,00

Total Expenses per month

Jan-16 453.908.532,58

Feb-16 586.204.294,86

Mar-16 667.813.902,26

Apr-16 294.324.954,46

Mei-16 726.363.855,45

Jun-16 1.091.575.906,47

Total 3.820.191.446,07

Appendix V - Summary Sales of Cinnamon Cutts grade AA 8 cm CV.

Alam Manis from January 2016 to June 2016

Table V.1. Total Sales of Cinnamon Cutts Grade AA 8 cm from January 2016

until June 2016

Period FG sold (Kg) selling price per kg Total (IDR)

January 2016 9.280 50.000,00 464.000.000

February 2016 16.140 45.250,00 730.335.000

March 2016 16.400 47.000,00 770.800.000

April 2016 13.800 46.500,00 641.700.000

May 2016 8.400 48.750,00 409.500.000

June 2016 12.000 45.250,00 543.000.000

Total sales 76.020

3.559.335.000

Average price

47.125,00

Appendix VI- Pernyataan CV. Alam Manis Perhitungan Harga Jual

Kayu Manis Cut

Berdasarkan Cv. Alam Manis, perhitungan harga jual kayu manis cut

dihitung secara dua cara yaitu perhitungan umum dan perhitungan analisa. Dalam

perhitungan umum, Cv. Alam manis menghitung harga jual kayu manis cut per kilo

dengan cara menjumlahkan harga pokok penjualan, biaya produksi langsung, biaya

tak terduga, dan jumlah profit berdasarkan jumlah total harga dari ketiga unsure

sebelumnya. Harga pokok penjualan dimana harga rata-rata pembelian bahan baku

kayu manis dari beberapa suppliers berbagai daerah. Biaya produksi langsung

merupakan total biaya yang dikeluarkan perusahaan untuk mengolah bahan baku

secara langsung seperti gaji karyawan per minggu, dan biaya bongkar muat untuk

karyawan yang ikut mem bantu bawa bahan baku ke area produksi. Biaya tidak

terduga ini dimana melibatkan biaya-biaya lain yang tidak dapat dihitung secara

detail seperti pengunaan listrik untuk menjalankan mesin-mesin gudang dan

penerangan, pengunaan energi genset, pengunaan bahan pengepakan, dan biaya

penyusutan karena adanya kesalahan taksiran kadar air. Penentuan nilai target

margin profit oleh CV. Alam Manis yang berdasarkan target profit per kg yaitu

dengan harga Rp.3,000 atau sekitar 5% - 10% dari total biaya keseluruhan.

Penentuan harga jual kayu manis cut di CV. Alam Manis selalu berdasarkan harga

pembelian bahan baku dari supplier atau naik turun harga bahan baku.

Dalam perhitungan analisa, CV. Alam Manis mempertimbangkan harga jual

kayu manis cut berdasarkan prediksi pasar di masa depan. Penentuan prediksi ini

berdasarkan dengan menilai situasi pasar melalui analisa persediaan bahan baku

kayu manis dan kontrak permintaan yang ditawarkan oleh pembeli. Harga kayu

manis menurun dikarenakan menurunnya permintaan pasar atau kondisi pasar

komoditas yang sepi. Sedangkan, Harga kayu manis naik karena supply barang

bahan baku menurun yang disebabkan oleh berkurangnya lahan kayu manis dan

keterlambatan peremajaan. Keterlambatan peremajaan kayu manis ini terjadi karena

harga pasar yang murah dimana terjadi dalam beberapa tahun yang lalu.

Disinilah pemilik dan direktur berkerjasama memprediksikan situasi pasar

kayu manis dan memilih kontrak penjualan mana yang bisa menghasilkan profit yang

menguntungkan kedua belah pihak per periode. Dan juga memilih momen kapan CV.

Alam Manis membeli bahan baku dari supplier juga dengan harga beli cocok sesuai

dengan kualitas bahan baku, jumlah kadar air, dan potensi hasil akhir setelah

diproses. Untuk itu, pemilik dan direktur bersama-sama menentukan letak titik

keseimbangan antara nilai persediaan dan nilai penawaran hingga dapat point

acuan dalam penentuan harga jual yang sesuai dengan kondisi pasarkomoditas.

Documents

Comparison of Costing Methods in Cinnamon Cutts Product CV