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UNIVERSITAS INDONESIA MOSQUITO REPELLENT PAINT Report Assignment 4 GROUP 12 GROUP PERSONNEL: Apryani Lestari Naibaho (1406531725)

UNIVERSITAS INDONESIA

MOSQUITO REPELLENT PAINT

Report Assignment 4

GROUP 12

GROUP PERSONNEL:

Apryani Lestari Naibaho

(1406531725)

Eliza Habna Lana

(1406531611)

Jayusandi Mulya Sentosa

(1406571470)

Muhammad Raihan Fuad

(1406564452)

Ricky

(1406570934)

CHEMICAL ENGINEERING DEPARTMENT ENGINEERING FACULTY UNIVERSITAS INDONESIA MAY, 2017

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EXECUTIVE SUMMARY

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LIST OF CONTENT

EXECUTIVE SUMMARY...................................................................................ii LIST OF TABLES.................................................................................................iv LIST OF FIGURES...............................................................................................v CHAPTER 1...........................................................................................................1

  • 1.1. Supply Chain Management...................................................................................1

  • 1.2. Raw Material.........................................................................................................3

    • 1.2.1. Raw Material Supply.....................................................................................3

    • 1.2.2. Order Capacity...............................................................................................7

  • 1.3. Product Inventory................................................................................................10

  • 1.4. Product Distribution............................................................................................10

  • 1.5. Product Marketing...............................................................................................10

  • CHAPTER 2.........................................................................................................11

    • 2.1. Total Capital Investment......................................................................................11

      • 2.1.1. Fixed Capital................................................................................................12

      • 2.1.2. Total Capital Investment..............................................................................19

  • 2.2. Operational Cost..................................................................................................20

    • 2.2.1. Manufacturing Cost.....................................................................................20

  • 2.3. Determining Product Cost Unit...........................................................................38

    • 2.3.1. Capital Loan................................................................................................38

    • 2.3.2. Product Pricing............................................................................................39

    • 2.3.3. Cash Flow....................................................................................................39

    • 2.3.4. Cost Breakdown...........................................................................................39

  • CHAPTER 3.........................................................................................................40

    • 3.1. Rate of Return.....................................................................................................40

    • 3.2. Rate of Return.....................................................................................................40

    • 3.3. Break Even Point.................................................................................................41

    • 3.4. Internal Rate of Return........................................................................................42

    • 3.5. Net Present Value................................................................................................42

    • 3.6. Sensitivity Analysis.............................................................................................43

      • 3.6.1. Selling Price Fluctuations............................................................................43

      • 3.6.2. Raw Material Cost Changes.........................................................................43

      • 3.6.3. Operational Cost Changes............................................................................44

      • 3.6.4. Fluctuation Graphics....................................................................................45

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    CHAPTER 4.........................................................................................................46

    REFERENCE.......................................................................................................47

    LIST OF TABLES

    Table 1. 1 Comparison of Raw Material Suppliers..................................................4 Table 1. 1 Comparison of Raw Material Suppliers (cont’)......................................5 Table 1. 2 Purchase Amount of Raw Material for Mosquito Repellent Paint

    Manufacture.............................................................................................................8

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    LIST OF FIGURES

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    CHAPTER 1 SUPPLY CHAIN

    • 1.1. Supply Chain Management

    Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served. (Michael Hugos, 2003). Effective supply chain management requires simultaneous improvements in both customer service levels and the internal operating efficiencies of the companies in the supply chain. Customer service at its most basic level means consistently high order fill rates, high on-time delivery rates, and a very low rate of products returned by customers for whatever reason. Internal efficiency for

    organizations in a supply chain means that these organizations get an attractive rate of return on their investments in inventory and other assets and that they find ways to lower their operating and sales expenses. There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and operating challenges and yet the issues remain essentially the same in every case. Companies in any supply chain must make decisions individually and collectively regarding their actions in five areas:

    • 1. Production—What products does the market want? How much of which products should be produced and by when? This activity includes the creation of master production schedules that take into account plant capacities, workload balancing, quality control, and equipment maintenance.

    • 2. Inventory—What inventory should be stocked at each stage in a supply chain? How much inventory should be held as raw materials, semifinished, or finished goods? The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain. However, holding inventory can be expensive, so what are the optimal inventory levels and reorder points?

    • 3. Location—Where should facilities for production and inventory storage be located? Where are the most cost efficient locations for production and for

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    storage of inventory? Should existing facilities be used or new ones built? Once these decisions are made they determine the possible paths available for product to flow through for delivery to the final consumer.

    • 4. Transportation—How should inventory be moved from one supply chain location to another? Air freight and truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times and more uncertainty. This uncertainty must be compensated for by stocking higher levels of inventory. When is it better to use which mode of transportation?

    • 5. Information—How much data should be collected and how much information

    should be shared? Timely and accurate information holds the promise of better coordination and better decision making. With good information, people can make effective decisions about what to produce and how much, about where to locate inventory and how best to transport it. The sum of these decisions will define the capabilities and effectiveness of a company’s supply chain. The things a company can do and the ways that it can compete in its markets are all very much dependent on the effectiveness of its supply chain. If a company’s strategy is to serve a mass market and compete on the basis of price, it had better have a supply chain that is optimized for low cost. If a company’s strategy is to serve a market segment and compete on the basis of customer service and convenience, it had better have a supply chain optimized for responsiveness. Who a company is and what it can do is shaped by its supply chain and by the markets it serves.

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    3 Figure 1. 1 Supply Chain Management (Source: : http://www.scmii.com/images/career-img.jpg, accessed 2017) 1.2. Raw Material 1.2.1.

    Figure 1. 1 Supply Chain Management (Source: : http://www.scmii.com/images/career-img.jpg, accessed 2017)

    • 1.2. Raw Material

      • 1.2.1. Raw Material Supply

    We need to choose suppliers for all of raw materials, because we will not make our raw materials by ourselves but we will order all materials from suppliers. The distribution of raw materials is one important factor in determining consideration of the factory location besides determination of the distribution of the product. In this section we will also discuss all things related to how to get the raw materials from suppliers to the manufacturing site, how long will it take from the suppliers, and how much that can be delivered to the factory within the period that have been determined. It is important to do to maintain the good flow of raw materials and eventually a smooth flow of product to the consumer. Raw materials for Kimora Paint is Pyrethrin, Acrylic Polymer, Water, Octenol, Mineral Defoamer, Copolymer Dispersant, Zinc Oxide, Surfactant, and Rheology Modifier as well as HDPE Bucket as the raw materials for paint packaging. Raw material for each of these components will be supplied from two different suppliers. We choose two suppliers so if there is something bad happen with the main supplier, we still have the second supplier as alternatives.

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    In the Table 1.1 below will be presented the list of raw materials, the total required raw materials needed per day, the raw material suppliers and its location, also the price given from each supplier.

    Table 1. 1 Comparison of Raw Material Suppliers

    Raw

     

    Supplier 1

     
    Raw Supplier 1
     

    Supplier

     

    Price /unit

     

    Su

    Materials

    Location

    Company

    Travel Time

    (Rp)

    Location

    Co

       

    Changsha

         

    Xia

    Pyrethrin

    China

    Natureway Co.,

    14

    days

    1.333.000/kg

    China

    Che

    Ltd.

     
       

    Guangdong

         

    Gu

    Haisun New

    J

    Acrylic

    China

    Material

    14

    days

    40.000/kg

    China

    Tec

    Polymer

    Technology Co.,

     

    Co

    Ltd.

    L

    Water

    Cikarang

    PT PDAM

    0 days

    12,132/kg

    Cikarang

    PT

       

    Zouping

         

    Pigments

    Changshan

    Shan

    China

    Town Zefeng

    17

    days

    26.512/kg

    China

    Indu

    (TiO2)

    Fertilizer

     

    Factory

     

    Table 1. 2 Comparison of Raw Material Suppliers (cont’)

     
       

    Kunshan Yalong

         

    O

    Octenol

    China

    Trading Co.,

    17

    days

    33.307/kg

    China

    Ch

    Ltd.

     

    Sup

       

    Jiangxi

         

    Mineral

    China

    Tiansheng New

    15

    days

    46.630/kg

    China

    Anhui

    Defoamer

    Materials Co.,

     

    Ltd.

    Copolymer

    China

    Shanghai ZZ

    15

    days

    106.583/kg

    China

    J

    Dispersant

    New Material

     

    Tians

    Tech. Co., Ltd.

    Mate

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    Shanghai

         

    Z

    Ruizheng

    Ch

    Zinc Oxide

    China

    Chemical

    • 16 days

    26.645/kg

    China

    Tow

    Technology Co.,

    Fe

    Ltd.

    F

     
               

    W

    Ja

    Surfactant

    China

    Nantong iTrade

    • 15 days

    25.313/kg

    China

    Inte

    Trade

       

    Hangzhou

         

    Zh

    Rheology

    China

    Heidis New

    • 15 days

    21.316/kg

    China

    Hon

    Modifier

    Material Co.,

    Mate

    Ltd.

               

    S

    HDPE

    China

    Innopack Global

    • 16 days

    6,641.5/set

    China

    Fansh

    Bucket

    Limited

    Man

    (Source: Personal Data, 2017)

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    • 1.2.2. Order Capacity

    Order capacity is determined based on how long a supplier can meet the order of a raw material. The amount of first purchase capacity is not equal with the following purchase. Usually first purchase capacity is more than the normal capacity (e.g. additional 10% for safety inventory). It is done to anticipate some problems that may occur regarding the delivery of raw materials or finished stock supplier. Table 1.2 shows the raw material prices per bases, the needed amount for a production each year, the number of order or purchase each year, and also the needed amount for safety inventory. From those data, we can make the scheduling of order.The scheduling of order is shown in Table 1.3.

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    Table 1. 3 Purchase Amount of Raw Material for Mosquito Repellent Paint Manufacture

    Raw

       

    Materials

    Packaging

    Price/

    Time

    Delivery

    Safety

    Supplier

    Location

    Needed/Day

    Size (kg/

    Packaging

    Order

    Cost/Order

    Inventory

    Materials

    Amount

    Unit

    drum)

    (Rp)

    (days)

    (Rp)

    (kg)

     

    Changsha

                 

    Pyrethrin

    Natureway Co.,

    China

    135.93

    kg

    25

    33.325.000

    • 12 380,604

    24.221.032

    Ltd.

     

    Guangdong

                 

    Haisun New

    Acrylic

    Material

    China

    4530.94

    kg

    150

    6,000,000

    • 12 7,807,219

    12,686.66

    Polymer

    Technology Co.,

    Ltd.

    Water

    PT PDAM

    Cikarang

    9061.88

    kg

    -

    -

    335

    -

    906.188

    Pigments

    Zouping Changshan Town

                 

    (TiO2)

    Zefeng Fertilizer

    China

    3624.75

    kg

    • 25 662,800

    • 12 18,798,611

    10,149.3

    Factory

     

    Kunshan Yalong

                 

    Octenol

    Trading Co., Ltd.

    China

    63.43

    kg

    • 25 832,675

    • 12 10, 192,018

    177.604

    Mineral

    Jiangxi Tiansheng

    China

    36.25

    kg

    200

    9,326,000

     
    • 12 18,971,809

    101.5

    Defoamer

    New Materials

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    Co., Ltd.

    Copolymer

    Shanghai ZZ New Material Tech.

    China

    217.49

    kg

     
    • 20 2,131,660

     
    • 12 14,921,648

    608.972

    Dispersant

    Co., Ltd.

     

    Shanghai

                 

    Ruizheng

    Zinc Oxide

    Chemical

    China

    36.25

    kg

    • 25 666,125

    • 12 14,921,648

    101.5

    Technology Co.,

    Ltd.

    Surfactant

    Nantong iTrade

    China

    126.87

    kg

    200

    5,062,600

    12

    18,851,903

    355.236

    Rheology

    Hangzhou Heidis New Material

    China

    289.98

    kg

     
    • 25 532,900

     
    • 12 7,807,219

    811.944

    Modifier

    Co., Ltd.

     

    HDPE

    Innopack Global

    China

    4830

    set

    3000

    19,924,500

     
    • 12 19,224,944

    13,524

    Bucket

    Limited

    (Source: Personal Data, 2017)

    • 1.3. Product Inventory

    • 1.4. Product Distribution

    • 1.5. Product Marketing

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    CHAPTER 2 PRODUCT COSTING

    PT. Kimora Paint is manufactured in Cikarang, Jawa Barat which comprises of plant, warehouses, and office which are the working places for both direct and indirect labor. The plant will be built in an area of 6,000 m2 as the total area. The plant will produce wall paint with a netto of 2.5 liters per packages. The total time needed to produce 4,830 packages of Kimora Paint is 9 hour 30 minutes, which is one cycle in one day. An precise economical analysis needed to be done to determine whether the product will be successful in the market or not. During the analysis process, all costs involved in all manufacturing process of this product are calculated considerably. Calculation of tax and profit will also be included in this analysis. Basically, there are two types of costs, fixed cost and variable cost. Fixed cost is the cost that will not change and won’t be influenced by the total production. On the other hand, variable cost is the cost that can always fluctuate by the influence of material requirements and total production. The purpose of conducting this analysis is to determine the rate of return of the product sales. The calculated rate of return can be used to determined the payback period.

    • 2.1. Total Capital Investment

    An investment is needed as the capital cost to begin a product manufacture. The capital investment is used to build the factory facilities and the cost of pre-operation. In this product manufacture, tha capital investment required will be received whether by the loan from the bank or self-fund raiser. And some assumptions have been made, such as:

    Currency conversion 1 US$ = Rp 13,324.85 (by May 2017).

    Some equipment or building have salvage value.

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    Plant will be built by the end of 2017 for one year. Plant will start to operate in the beginning of 2018. Depreciation will be calculated by Declining Balance Method with 10% as the value of f factor. Plant is built in empty land located in Jababeka 2 Cikarang Industrial Area The initial investment cost is known as Total Capital Investment (TCI). TCI of a chemical plant includes purchase of the land, building, offsite facilities, supporting facilities, utilities installation, market research, licensing and branding fee. In calculating the investment cost, there are two cost, that is Fixed Capital Cost (FC) and Working Capital Cost (FW). Fixed Capital Cost is the capital needed to supply the necessary manufacturing and plant facilities, while Working Capital is the capital needed to operate the plant until company get incomie. The TCI calculation is to determine the feasibility of development of a plant and to identify whether it will give a sufficient positive marginal value. Because our plant are chemical plant, we use the Guthrie method for the calculation of TCI. Guthrie method is done by calculating the Total Bare Module Cost. Guthrie method is usually chosen for calculating total capital investment because it can calculate other cost besides equipment cost based on bare module factor. This factor has included cost for additional fee such as delivery fee and installation fee. The key when using this method is how we classify our equipment into specific category. The equation to calculate Total Capital Investment :

    C TCI =C FC +C WC

    C TCI =1.18C TPI +C WC

    C TCI =1.18 ( C TBM +C site +C building +C offsite ) +C WC

    Where,

    C FC = Cost of Fixed Capital C WC = Cost of Working Capital (Before Obtaining Income) C TCI = Cost of Total Capital Investment C TPI = Cost of Total Plant Investment (Total Bare Module Cost, Cost of Site, Cost of Building, and Cost of Offsite Facilities)

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    • 2.1.1. Fixed Capital

    Fixed capital consists of direct cost and indirect cost. Direct cost is cost that directly involved in the production process of

    the product. Direct cost consists of many components, such as equipment costs (total bare module cost), land cost, building cost, offsite cost, etc.

    2.1.1.1. Direct Cost

    • a) Total Bare Module Cost

    Total bare are module cost are the equipment cost until it is installed and can be working in our plant. These cost data are reported as purchased, delivered, or installed cost. Purchased cost is the price of the equipment FOB at the manufacturer’s plant, whereas delivered cost is the purchased price plus the delivery charge to the purchaser’s plant FOB. Installed cost means the equipment has been purchased, delivered, uncrated, and placed on a foundation in the purchaser’s operating department but does not include piping, electrical, instrumentation, insulation, etc. In the literature, there are many sources of equipment cost data but only until 2017. We should estimate the price of equipment in the time we buy it because we will buy the equipment in 2018. To correct the price in year of purchase, cost index is needed to obtain purchase in 2018. A cost index is used to project a cost from a base year to another selected year. The estimation is conducted by using Marshall and Swift Chemical Equipment Index. We only have the index data until 2015, so we must extrapolate it first to obtain the index data for 2018. Marshall and Swift Chemical Equipment Index data and its results from extrapolation is shown in Table 2.1.

    Table 2. 1 Marshall and Swift Chemical Equipment Index

    13 2.1.1. Fixed Capital Fixed capital consists of direct cost and indirect cost. Direct cost is

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    After we know the index data, we can calculate the present cost of an equipment. Based on Perry Chemical Engineering Handbook (8th edition), the following equation is used to calculate the present cost of an equipment.

    Present cost = Original cost

      

    index value at present time  

    index value at original time

     

    After we get the present cost of an equipment, so we can calculate total bare module cost. The step to obtaining the Total Bare

    Module Cost are :

    List the equipment used in the plant and the quantity

    Classify the equipment into the type of module to obtain the bare module factor Figure 2.1 below are the list of bare module factor with the type of module that correspond:

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    15 Figure 2. 1 List of bare-module factor (Source: Seider et al. , 2004)  The

    Figure 2. 1 List of bare-module factor (Source: Seider et al., 2004)

    The bare module factors included FOB purchase, equipment instruments and installations (piping, concrete, steel, controllers, electrical, insulation, and paint), direct labor for installation (material erection and equipment setting), and also indirect module expenses (freight, insurance, taxes, construction overhead, and contractor engineering expenses). As for the equipments that have no bare module factor in the table, we would use the average value of the all bare module factor. This case might happen because the equipments we used are chemical equipments in batch mode operation that is specifically used. Using Marshall and Swift Chemical Equipment Cost Index to determine cost of equipment in year we expect to buy

    Multiply the cost with the quantity and the bare module factor

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    Sum the FOB cost we expect to buy with shipping cost to obtain CIF

    Use the formula to obtain Total Bare Module Cost. The formula is:

    Total bare module cost =

    inumber of equipment (bare module cost) i

    Total bare module cost = inumber of equipment (quantity x CIF x BM factor) i

    • b) Plant Building and Site Cost

    Table 2.2 Bare module cost

    The type of our factory is grass root plant, which means we build the entire factory in an empty land with total area of the plant is

    6000 m2 We assumed that the land are ready to use. Our plant will be built on Jababeka 2 Cikarang Industrial Area. The calculation of the land cost is listed on table 2.3 below :

    Table 2.1. Land Cost

    Price Per m 2 (Rp)

    Area (m 2 )

    Land Cost (Rp)

    3,800,000

    6,000

    22,800,000,000.00

    (Source: Personal Data, 2017)

    Building cost are cost for built the plant and the office inside. Our plant is joined with the office because our plant operation can be done indoor. The calculation of the building cost is listed on table 2.4 below :

    Table 2.4 Building cost

    Area

    Price (Rp)

    Area (m 2 )

    Total Price (Rp)

     

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    17 (Source: Personal Data, 2017) Based on the calculation in Table 2.3 and Table 2.4, the

    (Source: Personal Data, 2017)

    Based on the calculation in Table 2.3 and Table 2.4, the total cost for land reaches the amount of Rp building reaches the amount of Rp ...

    ...

    and the total cost for

    • c) Supporting Facilities Investment Cost

    Supporting facilities investment cost is cost for providing equipment in office and other area outside the battery limit. Battery limit is area that used for manufacturing process of the product. There will be many people work in office so we need equipments to provide their work. The calculation of supporting facilities cost is shown in Table 2.5.

    Table 2.2. Supporting Facilities Cost

     

    Quantit

       

    Equipment

    y

    Price per Unit

    Total Price

    Computers

    10

    4,705,000.00

    47,050,000.00

    Faximailes

    2

    1,650,000.00

    3,300,000.00

    Photocopy, Scanner, and Printer Machine

    2

    4,500,000.00

    9,000,000.00

    Clock

    10

    50,000.00

    500,000.00

    Receptionist Desk & Chair

    1

    3,575,000.00

    3,575,000.00

    Meeting Desk & Chair

    3

    5,100,000.00

    15,300,000.00

    Office Desk & Chair

    15

    1,350,000.00

    20,250,000.00

    Filling Cabinet

    20

    1,675,000.00

    33,500,000.00

    Whiteboard

    2

    325,000.00

    650,000.00

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    CCTV

    10

    2,460,000.00

    24,600,000.00

    Projector Set

    1

    4,300,000.00

    4,300,000.00

    Absence Machine

    1

    2,050,000.00

    2,050,000.00

    Pantry Utensils

    1

    3,000,000.00

    3,000,000.00

    Dispenser

    6

    1,000,000.00

    6,000,000.00

    Toilet Set

    5

    4,500,000.00

    22,500,000.00

    Neon Lamp

    80

    35,000.00

    2,800,000.00

    Generator

    1

    100,000,000.00

    100,000,000.00

         

    5,418,000,000.

    Transportation Vehicle

    17

    602,000,000.00

    00

    Recycle Bin

    10

    500,000.00

    5,000,000.00

    Air Conditioner 2pk

    10

    2,200,000.00

    22,000,000.00

    Telephone

    10

    165,000.00

    165,000.00

    1,650,000.00

     

    5,751,775,000.

    Summary

    00

    (Source: Personal Data, 2017)

    Based on the calculation in Table 2.5, the total supporting facilites cost is Rp 5,751,775,000.

    • d) Utilities Installation Cost Utilities installation cost is cost to provide general utilities for plant and office. The main utilities are water and electricity for the

    sustainability of plant process. Telephone, internet, and hydrant utilities are addition utilities for administration and safety. The details of cost data of the utilities are listed on table 2.6.

    Table 2.6 Utilities installation cost

    Installation

    Note

    Cost (Rp)

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    Electricity

    Installation

    Water Installation

    Hydrants Installation

    Network Installation

    Telephone

    Installation

    TOTAL UTILITIES INSTALLATION COST

     

    (Source: Personal Data, 2017)

    • e) Market Research Cost Utilities installation cost is cost to provide general utilities for plant and office. The main utilities are water and electricity for the

    sustainability of plant process. Telephone, internet, and hydrant utilities are addition utilities for administration and safety. The details of cost data of the utilities are listed on table 2.7.

    Table 2.7 Market Research Cost

    Market Research Activities

    Price (Rp)

    Survey (Online)

    Consultant Service

    TOTAL

    (Source: Personal Data, 2017)

    • f) Licensing Cost

    Licensing cost are cost for protecting our product license, like patent and brand. Patent is a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time, in exchange for the public disclosure of the invention. Patent that will be registered for our product Moisty includes two claims, which are :

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    Overall Moisty composition

    Moisty cream soap tube packaging

    In capital investment, we only calculate the cost on first year submission. Cost of patent registration and maintenance are regulated in Peraturan Pemerintah No. 45 Tahun 2014. According to the law, the costs that are charged to PT Kimora Paint production are shown in

    Table 2.8.

    Tabel 2.8 Patent fee details

    No.

    Non Tax Revenue

    Unit

    Cost (Rp)

    Qty.

    Total (Rp)

    1

    2

    2
     

    TOTAL PATENT COST

     

    (Source: Personal Data, 2017)

    The summary of patent and brand fee calculation is shown in Table 2.9.

    Table 2.9 Licensing cost

    Type of Fee

    Cost (Rp)

    Patent Registration

    Brand

    TOTAL LICENSING COST

    (Source: Personal Data, 2017)

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    • 2.1.1.2. Indirect Cost

    The indirect cost includes the cost of engineering and supervision, construction expense, contractor’s fee, and contigency.

    But, since our plant is a chemical product plant, indirect cost that will be calculated only consists of contractor’s fee, while the

    others are not taken in consideration for chemical product plant. The contractor’s fee varies for different situations, but roughly it

    presents in about 4-21 percent of building cost or 12.5 percent on average

    IndirectCost=12.5 .C TBM

    • 2.1.1.3. Working Capital Investment

    Working capital investment is cost needed to starts the production. It includes all costs needed for production process until

    it gets income. The working capital for a chemical plant consists of the total amount of money invested in raw materials and

    supplies carried in stock, accounts receivable, cash kept on hand for monthly payment of operating expenses, such as salaries, and

    payable taxes. The amount of inventory of the raw materials, which is calculated in working capital, typically equals to one month

    supply of the raw materials. Eq (2.6) shows a simple equation that can be used to calculate working capital.

    C Working Capital =

    12 1 xOperation Expenses

    • 2.1.2. Total Capital Investment

    After determining the working capital, the total capital investment can be calculated from Eq (?).

    C TCI =1.18 ( C TBM +C site +C buildings +C offsitefacilites ) +C WC

    The calculation of total capital investment cost is shown in Table 2.10. Table 2.11 shows total fixed capital cost. Figure

    2.2 shows breakdown of total capital investment cost.

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    Table 2.10 Fixed capital cost calculation

         

    Cost

    Cost for Each

    Type of Fixed

    Sub Type of

    Sub Fixed

    Accumulation of

    Capital

    Fixed Capital

    Each Type of

    Capital (Rp)

    Fixed Capital (Rp)

     

    Total BM Cost

    Land Cost

    Building Cost

    Direct Cost

    Supporting

    Facilities Cost

    Utilities Cost

    Licensing Cost

    Indirect Cost

    Contractor

    (Source: Personal Data, 2017)

    Table 2.11 Total Fixed capital cost calculation

    Type of Fixed Capital

    Cost (Rp)

    Total fixed capital invesment cost

    Total working capital invesment

    Total capital invesment

    (Source: Personal Data, 2017)

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    The cost of total capital investment is Rp

    ... .

    The value of total capital investment shows the amount of money that will be

    spent as an early capital investment at the beginning of the project. Based on the cost breakdown above, the costs that give the

    biggest contribution is

    ...

    (…%).

    • 2.2. Operational Cost

    Operational cost is the cost which is needed to operate a plant and distribute the product.

    • 2.2.1. Manufacturing Cost

    Manufacturing costs are costs which are required to support the production process of Kimora Paint. The costs consist of

    raw material cost, utilities cost, direct labor salary, maintenance cost, patent and brand registration cost, and fixed cost. The detail of

    each cost will be explained further in the next section.

    2.2.1.1. Direct Production Cost

    • a) Raw Material Raw material cost is the cost which is needed to buy all of the raw material needed in the production process of Kimora Paint.

    There are 11 raw materials that are needed to be purchased from the supplier which are pyrethrin, acrylic polymer, water, pigments (TiO2),

    octenol, mineral defoamer, copolymer dispersant, zinc oxide, surfactant, rheology modifier, and HDPE bucket. The calculation of raw

    material (including material for packaging cost) cost per year is shown in Table 2.12.

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    Table 2.12 Calculation of raw material

    Raw Materials

    Supplier

    Location

    Order / Year

    Price per

    Total Order

    Total Delivery

    Unit (Rp)

    Cost per Year

    Cost per Year

    Amount

    Unit

    (Rp)

    (Rp)

    Pyrethrin

    China

    Acrylic Polymer

    China

    Water

    Cikarang

    Pigments (TiO 2 )

    China

    Octenol

    China

    Mineral Defoamer

    China

    Copolymer

    China

    Dispersant

    Zinc Oxide

    China

    Surfactant

    China

    Rheology Modifier

    China

    HDPE Bucket

    China

    HDPE Bucket China
    HDPE Bucket China
     

    TOTAL RAW MATERIAL COST

     

    (Source: Personal Data, 2017)

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    Based on the calculation in Table 2.12, the total raw material cost (including packaging cost) for Kimora Paint with the amount

    Rp

    ...

    for total order cost per year and the amount of Rp

    ...

    for total delivery cost per year.

    • b) Direct and Indirect Labor Salary PT. Kimora paint plant operates 8 hours per day and three days per week. The maximum working time for each labor is 24 hours

    per week. Direct labors are labors who involve directly to the production process while indirect labors are those who aren’t involve directly

    to the production process. Determination for the employees’ salary is based on the article published in Kompas regarding the Regional

    Minimum Wage Policy. The Regional Minimum Wage on the province of Cilegon, Banten on 2016 is RP 3,078,057. The calculation of

    direct and indirect labor cost is shown in Table 2.13 and Table 2.14.

    Table 2.13 Direct labor wages

    Position

    Amount

    Salary per month per person

    Total Salary

    (person)

    (Rp)

    (Rp)

    Operator

    Quality

    Controller

    Warehouseman

    Driver

     

    TOTAL DIRECT LABOR COST

     

    (Source: Personal Data, 2017)

    Table 2.14 Indirect labor wages

    Departmen

    Position

    Amount

    Salary per

    Total Salary

    t

    (person)

    month per

    (Rp)

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    person (Rp)

     

    President Director

    General Manager

    Stakeholder

    Secretary of

    President Director

     

    Table 2.14 Indirect labor wages (cont’d)

    Departmen

     

    Amount

    Salary per

    Total Salary

     

    t

    Position

    (person)

    month per

    (Rp)

    person (Rp)

    Finance

    Finance Accounting

         

    Manager

    Department

    Accounting Analyst

    General

    Security

    Support &

    Receptionist

    Service

    Cleaning Service

    Production

    Production

           

    Department

    Coordinator

    QC Manager

    Supply Chain

           

    Management

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    Manager

         

    Logistic Manager

     

    Human Resources

         

    Manager

    HRD

    Human Resources

         

    Department

    Planning and

    Recruitment

    Coordinator

    HES

           

    Department

    HES Manager

    Sales and

    Marketing Manager

    Marketing

    Sales Engineer

    Department

    Sales / Promotor

    Maintenanc

    Electrical Engineer

    e

    Mechanical

         

    Department

    Engineer

    Department Engineer
     

    TOTAL INDIRECT LABOR COST

     

    (Source: Personal Data, 2017)

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    Based on the calculation in Table 2.13 and Table 2.14, the total cost for direct labors is RP … and the total cost for indirect labors

    is Rp …

    c)

    Utility

    Utility is a system that generates, transmits, or distributes electricity, water, or steam of plant’s facilities. Variable utility costs are

    costs for utilities which are used during the production process. Fixed utility costs are costs for utilities which are used for administration

    process and do not depend on the activity and amount of production. The utilities which are used in this plant consists of water and

    electricity which are used during the production process.

    The cost of electricity used for the main production process relates to the process and activities of the plant. Electricity in Kimora

    plant is supplied directly from PLN. The data for electricity cost is obtained from PLN website shows in Table 2.15

    Table 2.15 Tariff adjustment in May 2016

    No

       

    Usage Cost

    .

    Tariff Group

    Power Limit

    (Rp/kWh)

    1

    R-1/TR

    1300 VA

     

    1353.45

    2

    R-1/TR

    2200 VA

     

    1353.45

    3

    R-2/TR

    3500 - 5500 VA

    1353.45

    4

    R-3/TR

    > 6600 VA

     

    1353.45

     

    6600

    VA

    -

    200

     

    5

    B-2/TR

    kVA

    1353.45

    6

    B-3/TM

    > 200 kVA

     

    1041.07

    7

    I-3/TM

    > 200 kVA

     

    1055.47

    8

    I-4/TT

    > 30,000 kVA

     

    931.99

    9

    P-1/TR

    6600

    VA

    -

    200

    1353

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    kVA

    • 10 > 200 kVA

    P-2/TM

    1041.07

    • 11 P-3/TR

    -

    1353.45

    • 12 L/TR, TM, TT

    -

    1529.73

    (Source: PLN, http://www.pln.co.id/wp-content/uploads/2016/05/Tariff-Adjustment-Mei-2016)

    The factory can be classified in I-3/TM group since the factory can be categorized as middle scale industry. Based on the tariff

    above, the usage cost per kWh is Rp 1,055.47. The calculation of electricity needs for the main equipment and supporting equipment are

    shown in Table 2.16 and Table 2.17 (working time for the main equipment is calculated with the base of 4 days or one production cycle).

    Table 2.16 Electricity needs for main equipment

     

    Qt

    Power

    Working

    Total

    Total

    Total

     

    Equipments

    (kW)

    Time/week

    Power/wee

    Power/year

    Cost/year

     

    y

    (h)

    k (kWh)

    (kWh)

    (Rp)

     
     
    Qt Power Working Total Total Total Equipments (kW) Time/week Power/wee Power/year Cost/year y (h) k (kWh)
     

    TOTAL ELECTRICITY COST FOR MAIN EQUIPMENTS

     

    (Source: Personal Data, 2017)

    Table 2.17 Electricity needs for supporting equipment

     

    Equipments

    Qty

    Power

    Working

    Total

    Total

    Total

     

    (kW)

    Time/day

    Power/day

    Power/year

    Cost/year

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    (Source: Personal Data, 2017)

    (Source: Personal Data, 2017)

    (h) (kWh) (kWh) (Rp) TOTAL ELECTRICITY COST FOR SUPPORTING EQUIPMENTS
    (h)
    (kWh)
    (kWh)
    (Rp)
    TOTAL ELECTRICITY COST FOR SUPPORTING
    EQUIPMENTS

    Based on the calculation in Table 2.16 and Table 2.17, the total cost of electricity needs for main equipment is Rp … and for

    supporting equipment is Rp …

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    Water needs in Kimora plant is obtained directly from PDAM located in Cilegon. Process water needs determination is done based

    on the water needs for washing the equipment. Based on Kemenperin data, the amount of process water needs is 0,5 L/h.m2 each day. On

    the other hand, employees also have a need of water every day. WHO data shows that each person needs around 40 L water per day for the

    purpose of drinking and toilets. Based on article in Tribun News website, the price of water is Rp 12,550.00 per m3. Therefore, the

    calculation of water needs in Kimora plant is shown in Table 2.18

    Table 2.18 Water needs in Kimora plant

     

    Water Needs

    L/ day

    m 3 /year

    Total Utilities Cost for Water / year (Rp)

    Process utility

    3,600

    1314

    (Source: Personal Data, 2017)

    Table 2.19 Water needs in Kimora plant

     

    Water Needs

    L/ day

    m 3 /year

    Total Utilities Cost for Water / year (Rp)

    Employee

    1680

    613.2

    TOTAL WATER COST PER

     

    YEAR (Rp)

     

    (Source: Personal Data, 2017)

    Based on the calculation above, the cost of utilities which included the electricity and water needs anually is :

    • d) Maintenance Cost

    Total utility cost

    = total electricity cost + total water cost

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    Maintenance is the activity to preserve or maintain the plant along with its facilities including the equipment which are involved in

    the production process by repairing, adjusting, or replacing some of their components. Maintenance is an activity that must be done to keep

    obtaining the desired production capacity to fulfill the demand of consumer.

    To keep the efficiency of the equipment and building in the plant, maintenance process must be done. The maintenance process

    will take some times and needs cost. Maintenance activities may include the act of inspecting, lubricating the equipment, replacement of

    equipment’s components which are needed to be done in a certain period.

    Maintenance process consists of three main parts, i.e. major equipment maintenance, plant and office building maintenance, and

    supporting equipment maintenance. According to Kusuma, the average equipment maintenance cost for food industry reach the number of

    15% of total production cost. The calculation of maintenance cost based on those information is shown in Table 2.20.

    Table 2.20 Maintenance cost

     

    Cost per

    Maintenance

    Amount (percentage)

    Year (Rp)

    Main equipments

    15 % of Total Bare Module Cost

    Supporting equipments

    3% of Supporting Facilities Cost

    Land and building

    1% of Land and Building Cost

    TOTAL MAINTENANCE COST PER YEAR (Rp)

     

    (Source: Personal Data, 2017)

    • e) Patent and Brand Registration To create a legally distributed product in public, we need to make patent and brand for copyright and registered in the law. Patent

    and brand registration will include patent, copyright, industrial design, and brand.

    Patent

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    A patent is a set of exclusive rights which is granted to the inventor from the sovereign state for a certain or limited period of time.

    Patent will make a product legal based on law. Because patent right is limited for a certain period, there will be a certain cost

    that should be paid for every year.

    Copyright

    Copyright is an exclusive right for inventor to announce or to copy the invention. Copyright registration and maintenance of

    Kimora should also be done to make the product legal in the law.

    Industrial Design

    Industrial design is the right of composition, configuration, line, and color of a design that has aesthetical value.

    Brand

    Brand is an identity of a product that can differentiate it from another existing product. We need to register our brand to the

    sovereign state so that the brand will be legal in the law.

    Based on these calculation, the cost needed for patent and brand registration is Rp …

    f)

    Fixed Cost

    Fixed costs are costs which are not influenced by the amount of production and tend to keep each year,

    Depreciation

    Every purchased equipment, whether it’s main or supporting equipment, has a life time value. Depreciation is defined as a

    measure of decrease in value of something over time. Some companies use depreciation to set aside a fund to replace a plant when

    it is no longer operable. In its most complex application, depreciation is an annual allowance, whose calculation is controlled by

    the government when determining federal income tax. The larger the depreciation in each year, the smaller the federal income tax

    and the greater the net profit.

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    There are some methods that can be used to calculate the depreciation of plant’s assets. For the further calculation, we will use

    declining – balance method. Declining – balance method is a method for depreciation calculation which uses f factor to the value

    of properties each year. The equation which is used to determine the amount of depreciation in this method is shown as follows.

    D

    1

    V i .

    f

    SV V

    i

    1f

    n

    In this calculation, we will use the value of f factor in the amount of 0,1 (10%). From this calculation, we can know the

    amount depreciation (D) and salvage value (SV) for each year. Salvage value is the amount of money that still can be obtained by

    selling the equipment that still has a certain value at the end of its life expectancy. The details of depreciation are shown in the

    following tables.

    Table 2.21 Depreciation calculation for main equipment

    Initial Year 1 Year 2 Year 3 Year 4 Year 5 Value Equipments (Rp) D (Rp)
    Initial
    Year 1
    Year 2
    Year 3
    Year 4
    Year 5
    Value
    Equipments
    (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    TOTAL
    DEPRECIATI
    ON

    (Source: Personal Data, 2017)

    Table 2.22 Depreciation calculation for supporting equipments

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    Initial Year 1 Year 2 Year 3 Year 4 Year 5 Value Equipments (Rp) D (Rp)
    Initial
    Year 1
    Year 2
    Year 3
    Year 4
    Year 5
    Value
    Equipments
    (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    (Source: Personal Data, 2017)
    Table 2.23 Depreciation calculation for building and facilities
    Initial Value
    Year 1
    Year 2
    Year 3
    Year 4
    Equipments
    (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    D (Rp)
    SV (Rp)
    Building
    TOTAL
    DEPRECIATION

    (Source: Personal Data, 2017)

    Based on the calculation above, the total depreciation for a life expectancy of 10 year is shown in the following Table 2.24.

    Table 2.24 Total depreciation cost for 10 years of life expectancy

    Year

    Depreciation (Rp)

    1

    2

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    3

    4

    5

    6

    7

    8

    9

    10

    TOTAL DEPRECIATION

    (Source: Personal Data, 2017)

    Local Tax

    Local tax contains building tax and salary tax. Building tax

    is

    not only for the building but also the land. The value is

    calculated by using method that is ruled in government’s law. Table 2.25 show us the calculation of building tax in Indonesia.

    Table 2.25 Cost for building tax

    Description

    Area (m 2 )

    Price (Rp)

    Total Price (Rp)

    NJOP Earth

    NJOP Building

     

    Total NJOP

     

    NJOPTKP

     

    NJOP for PBB

     

    NJKP (40% NJOP)

     

    Debated PBB (0.5 NJKP)

    (Source: Personal Data, 2017)

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    Every person which works need to pay the salary tax that is suitable with their salary. The rate of the tax varies with the sum

    of the salary in a year. The calculation of salary tax in Indonesia is stated in the UU No. 36 Year 2008. Table 2.31 shows the

    calculation of salary tax for our employees.

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    Table 2.26 Direct labor salary tax

    35

    Position

    Amount

    Salary per month

    Insurance

    Bruto

    Position

    Net Income

    Net Income

    Taxable

    Salary Tax Per Year

    (person)

    per person (Rp)

    Income

    Cost

    per Month

    per Year

    Income

     
     
     
     
     
    Position Salary per month Insurance Bruto Position Net Income Net Income Taxable Salary Tax Per Year
     

    Total Tax Salary

     

    (Source: Personal Data, 2017)

    Insurance

    Insurance is the cost which is paid by cooperated insurance company to the worker. Insurance is needed to protect the assets

    of company, including variable assets and fixed assets. The paid insurance includes the insurance for cost of plant and employee’s

    insurance. The data for employees’ insurance is obtained from Jamsostek (Jaminan Pemeliharaan Kesehatan). It is said that the

    company should pay at least 3% of the worker wages (and the maximum amount is one million rupiah) monthly to follow this

    insurance programmer.

    Table 2.27 Annual insurance cost

     

    Annual Cost

    Insurance Type

    Measurement

    Amount (Rp)

    (Rp)

    Plant Insurance

    0.5% of Fc Cost

    Employee's

    Insurance

    3% of Salary

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    Total Insurance

    (Source: Personal Data, 2017)

    2.2.1.2. General Expense

    General expense is an expense related to the routine expenses of a plant office to support the operational activity of the plant. The

    component in general expenses are communication cost, annual research and development cost, annual distribution cost, and annual

    financial interest cost for 10 years of life expectancy.

    • a) Communication Cost The calculation of communication cost is shown in Table 2.27.

    Table 2.27 Total communication cost

    Communication Type

    Cost (Rp)

    Note

    Telephone

    Internet Connection

    TOTAL COMMUNICATION

    COST

    (Source: Personal Data, 2017)

    • b) Distribution Cost Distribution cost is a cost which is needed to distribute the products. Distribution cost is influenced by the distribution plan

    developed in supply chain. The distribution cost can be divided into cost from plant to distribution center and cost from distribution center

    to wholesaler. The distribution area of is divided into three main regions throughout Java, Bali and Sumatra island. The division of the

    region is done as follows.

    Region I covers area of West Java and East Java and surrounding areas.

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    Region II covers area of D.I. Aceh, Riau, South Sumatra, and surrounding areas.

    The distribution of our product can be done with shipping to the consumer’s plant site. The distribution cost includes handling cost

    of inventory at all points for example in the plant area, storehouse, or even sales point. The calculation for the distribution of Kimora paint

    is shown in Table 2.28.

    Table 2.28 Distribution cost of Kimora

     

    Distance

    Solar

    Cost per

    Total Cost

    Route

    Pathway

    Frequency

    Consumption

    Travel

    per Year

     

    (km)

    (L)

    (Rp)

    (Rp)

     
     
     
     
     
     

    (Source: Personal Data, 2017)

    • c) Marketing Cost The purpose of marketing is to introduce a product to the consumers or to catch the attention of consumers. Marketing is also used

    to maintain the image and to sell a certain brand. Before determining the marketing cost, we must develop and arrange a marketing strategy

    for our product. One of the best ways to get consumers’ attention is by advertising. From advertisement, consumer will gain some

    information regarding our product. An advertisement can be categorized as good advertisement based on its effectiveness. For the

    advertisement, we choose two main media, printed media and electronic media.

    Printed Media

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    Printed media is the commonly used media for advertisement. For the printed media we use booklet and flyer because it is more

    compromising. The calculation of printed media publication fee is shown in Table 2.29.

    Table 2.29 Cost of printed media publication

    Printed Media

    Type

    Size

    Total Cost (Rp)

     

    (Source: Personal Data, 2017)

    Electronic Media

    Electronic media can also help us to advertise our product. Nowadays, most people’s activity utilize the usage of internet.

    Therefore, we choose to advertise our product through this media. We will develop a particular website that can help us to

    introduce Kimora paint specifically to the consumers. The calculation of electronic publication media fee is shown in Table 2.30

    and Table 2.31.

    Table 2.30 Cost of online advertisement through website

    Web Address

    Time

    Price /

    Price / year

    (Adv/day)

    day (Rp)

    (Rp)

     
     
     
     

    TOTAL ONLINE ADVERTISEMENT COST

     

    (Source: Personal Data, 2017)

    Table 2.31 Cost of website development

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    Types

    Cost / year (Rp)

    Creating Website Cost

    Design Website Cost

    Annual Cost

    TOTAL WEBSITE DEVELOPMENT COST

    (Source: Personal Data, 2017)

    Based on the calculation of marketing cost for Greetor in two different media (printed media and electronic media), the amount of

    cost marketing is Rp …

    • 2.3. Determining Product Cost Unit

      • 2.3.1. Capital Loan In order to build out plant and start to produce Kimora, we need money to be invested. we’ve decided that our investment will be

    100% from bank loan. The reason of this configuration is based on a consideration that bank interest rate is lower than the investor interest

    rate.

    We decide to borrow the money from Bank of Central Asia because it provides a more secure and stable loan rates than the others

    bank. We also lend money from investor because bank can only provide 70% of total capital investment. Moreover, the loan rates in BCA is

    relatively low, compared to the others. The interest rate is 10%. And investor interest rate is 9%. Table 2.32 shows the cash flow of bank

    loan.

    Table 2.32 Cashflow of bank loan

    Year

    Initial Loan

    Loan

    Payment

    Total

    Loan after

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    Payment

    Payment

     

    Interest (Rp)

    (Rp)

    (Rp)

    (Rp)

    0

    1

    2

    3

    4

    5

    (Source: Personal Data, 2017)

    • 2.3.2. Product Pricing The outcome of our company for 10 years of plant life is Rp … with financial interest of Rp…. To ensure that we can cover all the

    expenses, capital cost and the financial interest, we sum up all the expenses for 10 years plant life and then divide it by the total production

    for 10 years to get single product price. The calculation of product price is shown in Table 2.33.

    Table 2.33 Product price calculation

    Based on the calculation above, the minimum price of our product is Rp

    ...

    With a marginal advantage of 20%, the renewed price of

    our product is Rp …

    • 2.3.3. Cash Flow

    • 2.3.4. Cost Breakdown

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    CHAPTER 3

    PROFITABILITY AND SENSITIVITY ANALYSIS

    • 3.1. Rate of Return Return of investment (ROI) is the gain or loss on an investment over a specified period of time, usually annually, expressed as a

    percentage of the investment’s cost. ROI provides an overview of the profitability of the plant, normally using the estimates of the elements

    of the investment and the pre-tax or after-tax earnings. For ROI, and all of the approximate profitability measures of this section, the

    production cost is computed using straight-line depreciation, and after some startup period, the plant is assumed to be operated each year at

    full capacity (or at some percentage of full capacity) for the same number of days per year.

    ROI=

    annual net profit

    totalcapital investment

    x 100

    The amount of annual net profit is Rp xxx while the amount of total capital investment is Rp xx. Therefore the calculation of ROI for

    Cassathan plant is shown as follows

    ROI= a a x 100 =xx

    • 3.2. Rate of Return

    The payback period is the length of time required to recover the cost of an investment. The payback period of a given

    investment or project is an important determinant of whether to undertake the position or project, as longer payback periods are

    typically not desirable for investment positions. The payback period ignores the time value of money, unlike other methods of

    capital budgeting, such as net present value, internal rate of return or discounted cash flow.

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    Payback period of a given investment or project is an important variable to whether execute the project or not. High-risk

    ventures should have payback periods of less than 2 years. In these times of rapid progress in technology, most companies will not

    consider a project with a PBP more than 4 years. PBP is especially useful for simple equipment replacement probelms (Seider et al.,

    2003). Longer payback periods are not typicall desirable for investment positions. The calculation of payback period is done as

    follows

    PBP=

    Depreciable FCI +Interest onTCI during service life

    (avg profit per year+avg depreciation per year) as cons annuity

    where FCI is fixed capital investment and TCI is total capital investment. Ten years is chosen as the service life because it is long enough

    and it is most used in economic analysis for food and chemical industrial’s service life. Based on these assumptions, we calculate the

    payback period of our project as follows

    Table 3.1 Payback period calculation

    Year

    Cash Flow

    Cummulative Cash flow

    0

    1

    2

    3

    4

    5

    6

    7

    8

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    9

    10

    (Source: Personal Data, 2017)

    • 3.3. Break Even Point Breakeven point (BEP) is an analysis which is done to define and determine the amount of goods or services that must be

    sold to the consumer with a determined price to cover the costs that emerge and obtain profit. BEP analysis is very important so that

    we don’t experience loss during the production. The payback period of our plant is XXX years or equal with XXX days. Therefore,

    the amount of production until the XXXth day can be used to determine the breakeven point. The calculation of BEP is shown in

    Table 3.2

    Table 3.2 Breakeven point calculation

           

    Sold

    Cumulative of

    Product

    Sold Product

    Years

    Days

    Product

    Sold Product

    s /day

    (%)

    (Units)

    (Units)

    1

    2

    3

    4

    5

    (Source: Personal Data, 2017)

    Based on the calculation in Table 3.2, for a payback period of XXX days, the breakeven point is reached for XXX products produced.

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    • 3.4. Internal Rate of Return

    • 3.5. Net Present Value Net Present Value (NPV) is a value that shows the net benefits received by a project over the life of the project at a certain

    interest rate. NPV can also be interpreted as the present value of the cash flows generated by the investment. During the calculation

    of NPV, we must also determined the relevant interest rate. For this calculation, we also used the MARR value that has been

    calculated before, which is ___

    %.

    Net present value can be calculated by equation below.

    CF

    n ,0

    CF

    n

    1 i

    n

    Where :

    CF n

    i

    n

    = The net cash flow in time- n

    = Interest rate used in the project

    = Time of the project

    If NPV is greater than zero, it means that the project is profitable or could give benefits if it’s executed while if the NPV is less than

    zero it means that project is not profitable to run. If NPV value equals to zero, it means that the project won’t result in any profit or loss.

    From the calculation with Ms. Excel application, we obtained the value of NPV is Rp

    ______.

    Because NPV value is greater than zero,

    based on NPV calculation we can conclude that this project is profitable.

    • 3.6. Sensitivity Analysis A sensitivity analysis is conducted to determine the effect of percentage changes in pertinent variables on the profitability of

    the project. Such an analysis indicates which variables are most susceptible to change and need further study (Perry, 2007).

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    • 3.6.1. Selling Price Fluctuations

    This type of sensitivity analysis was performed based on the fluctuation of product sales price. The calculation of this

    analysis is shown in Table 3.1. The parameter which is observed in this calculation is the change in economic viability parameter

    such as NPV, IRR, and PBP if there is a decline in the level of product sales. When a decline in the selling price is occur, the

    percentage of IRR obtained will be smaller, which means the rate of return will become longer until it is undefined. On the other

    hand, it is known that lower selling price will cause a longer payback period.

    Change

    Product Price per Unit

    IRR

    NPV

    PBP (years)

    -15%

    -10%

    -5%

    0%

    5%

    10%

    15%

    • 3.6.2. Raw Material Cost Changes

    Sensitivity analysis was also performed on the change of the operational costs of this product. Change of cost that influences

    production activities can also affect the NPV value. If the cost increase, NPV value tends to be smaller, while if the cost decrease,

    otherwise will happen. Along with NPV, IRR will also decrease by the change or increase in cost. A longer payback period will also

    be obtained if the cost that influences production process increase.

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    A fiable factory is a factory that can’t be easily swayed by the change in these costs despite in the cost breakdown it can be

    seen that production process definitely influence by the cost of raw materials. Table 3.2 shows raw material price fluctuation.

    Change

    Operational Labor

    IRR (%)

    NPV (Rp)

    PBP

    (%)

    Wage (Rp)

    (years)

    -15%

    -10%

    -5%

    0%

    5%

    10%

    15%

    • 3.6.3. Operational Cost Changes

    This sensitivity analysis was performed on the change of the operational costs of the product. The observed parameter in this

    analysis is also the change in economic viability parameter (NPV, PBP, and IRR). The increase in operating expenses to support the

    production activities will cause a change in NPV. NPV value will be smaller by the increase of operational costs. The change in

    operational cost will also cause the change in IRR value. Increasing labor cost or operating cost will decrease the value of IRR.

    Lower IRR value means that the return will be smaller (become less profitable). Aside from NPV and IRR, PBP value will also

    change as the result of change in labor cost. PBP tends to be longer if the labor cost increases.

    Change

    Operational Labor

    IRR

    NPV (Rp)

    PBP

    (%)

    Wage (Rp)

    (%)

    (years)

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    -15% -10% -5% 0% 5% 10% 15%
    -15%
    -10%
    -5%
    0%
    5%
    10%
    15%
    • 3.6.4. Fluctuation Graphics

    There are 3 graphic in this sub chapter. These are shown below.

    Net Present Value

    (insert graphic)

    From graphic above, it can be seen that the influence of labor cost are .......

    Internal Rate of Return

    (insert graphic)

    From figure above, it can be seen that the influence of operating labors is ............

    Payback Period

    (insert graphic)

    From figure above, it can be seen that the influence of labor cost is …........

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    CHAPTER 4

    CONCLUSION

    In this chapter, we can take some conclusions as follows:

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    REFERENCE

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