{"id":93944,"date":"2025-03-12T11:36:20","date_gmt":"2025-03-12T04:36:20","guid":{"rendered":"https:\/\/bahtera.jp\/?p=93944"},"modified":"2025-03-31T14:26:50","modified_gmt":"2025-03-31T07:26:50","slug":"cost-management-indonesia","status":"publish","type":"post","link":"https:\/\/bahtera.jp\/en\/cost-management-indonesia\/","title":{"rendered":"Cost Management in Indonesia"},"content":{"rendered":"

Mass production factories, such as two- and four-wheeler parts manufacturers common in Indonesia, have multiple manufacturing processes. In such cases, processing costs are calculated for each process, and the method of aggregating these costs into the product is called process costing. In this approach, labor costs and manufacturing overheads are recorded at the end of the month by the accounting department, transferred to inventory assets, and then allocated accordingly.
\nOn the other hand, in factories producing custom-made items under individual order production, job order costing is used, where costs are aggregated by order number or project number. In this case, labor costs and manufacturing overheads are calculated by multiplying pre-determined wage rates or allocation rates by the hours worked.
\nThe operating rate of production facilities in Indonesia\u2019s manufacturing industry fluctuates. When the operating rate decreases, fixed costs such as labor and equipment expenses are heavily allocated to the lower production output, causing product costs to rise. Therefore, a cost calculation system that reflects fluctuations in production plans and actual results, along with a mechanism to calculate profits, becomes necessary. This requires accurate real-time data collection using IoT and a system capable of setting allocation rules that align with reality.
\nHowever, the fundamental issue is that no matter how precisely costs are tracked, profits won\u2019t increase. To concretely improve profitability, variance analysis of costs and budget-versus-actual analysis for management decisions are essential. This necessitates setting departmental targets, monthly monitoring, and creating a system that highlights the most effective targets for profit improvement.
\nThis blog features articles on cost management systems aimed at helping those in Indonesia\u2019s manufacturing industry who feel the need to systematize cost management operations but are unsure where to start, offering insights into what a manufacturing system suited to Indonesia might look like<\/span>.<\/p>\n

Differences in Cost Calculation Methods Adopted by Production Management Systems<\/h2>\n

Production management packages commonly implemented in Indonesia, such as Microsoft Dynamics or Sage Accpac, adopt actual cost calculation based on the perpetual inventory method. This method performs real-time cost calculation and generates accounting entries with every inventory receipt or issuance, covering the sequence of material procurement, material input (material cost incurrence), manufacturing (transfer of material costs to products), shipping (revenue recognition), and cost of goods sold (transfer of product costs to cost of sales). As a result, no transfer entries from beginning inventory balances to ending inventory balances for cost of sales are generated.
\nSystems using the three-way method adopt actual cost calculation executed in batches after the accounting month-end closing, as well as standard cost calculation performed as part of managerial accounting based on next period\u2019s production plans and fixed cost budgets.
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Differences in Cost Calculation Methods Adopted by Production Management Systems<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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The differences in cost calculation methods between a system adopting the perpetual inventory method, where journal entries are generated with each receipt or issuance, synchronizing the inventory asset valuation between accounting and inventory management, and a system adopting the periodic inventory method (inventory calculation method), which calculates manufacturing costs by subtracting the ending inventory from the beginning inventory and the expenses incurred during the month, will be explained by separating variable costs and fixed costs.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

\u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<\/p>\n

Rolling Costing: Adding Process Costs to Preceding Process Costs to Determine Manufacturing Costs<\/h2>\n

In cases with multiple manufacturing processes, process costs are calculated for each process. There are two methods to aggregate these costs into product costs: rolling costing and non-rolling costing.<\/p>\n

\n
    \n
  1. Rolling Costing
    \nThe finished goods of each process carry the costs of the preceding process plus the current process costs as they are transferred to the next process (commonly referred to as \u201crolling calculation\u201d = Rolling Costing).<\/li>\n
  2. Non-Rolling Costing
    \nA method where costs of each process are calculated without including preceding process costs, and these are directly summed to determine product costs.<\/li>\n<\/ol>\n<\/div>\n

    Since monthly fixed costs remain constant while production volumes adjust to market changes, calculating manufacturing costs based solely on actual production volumes leads to short-sighted cost management. Therefore, a standardized cost leveled across the year is determined before preparing the next period\u2019s budget, forming the basis for sales and procurement plans.
    \nCost variance represents how much the monthly manufacturing cost deviates from this unchanging annual standard cost. Cost variance analysis breaks this down into factors such as material purchase prices, purchase quantities, and operating hours.
    \nCost variance indicates the degree to which the current month\u2019s manufacturing cost deviates from the standard cost (the baseline). Naturally, inventory accumulated at the beginning of the month bears no responsibility for this cost variance<\/span>. However, when shipped, both the beginning inventory and the current month\u2019s production are lumped together and evaluated at a total average, ultimately bearing joint responsibility as the unit cost of goods sold<\/span>.
    \nThe total average unit cost existing during manufacturing cost calculation is the total average unit cost of work-in-progress<\/span>, while the total average unit cost of finished goods is calculated based on \u201cbeginning product inventory + current month\u2019s product manufacturing cost,\u201d corresponding to the unit cost of goods sold calculated after manufacturing costs<\/span>.
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    The Cumulative Method of Calculating Manufacturing Costs by Adding The Costs of The Current Process to The Costs of The Previous Process.<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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    For items that have beginning inventory but no input performance in the current month, they remain recorded as assets on the B\/S and are not expensed as manufacturing costs for the current month. Assuming there is no input-yet-to-be-completed (in-process inventory), the essence of actual cost calculation lies in calculating the manufacturing costs of input items by accumulating them by cost element using the total average unit price and allocating the processing costs of the current process by item.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

    \u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<\/p>\n

    Variance Analysis Between Actual Cost Calculation and Standard Cost Calculation<\/h2>\n

    Both actual and standard costs can be analyzed for variances by treating fixed costs like variable costs using the concepts of wage rates (allocation rates) and hours worked (efficiency).<\/p>\n

    \n
      \n
    1. Direct Material Cost (Materials) = Unit Price x Quantity (KG per product)<\/li>\n
    2. Direct Labor Cost (Labor) = Wage Rate (Amount per minute) x Efficiency (Hours per product)<\/li>\n
    3. Manufacturing Overhead (Machinery) = Allocation Rate (Amount per minute) x Operating Rate (Minutes per product) \u2190 Allocated by working hours<\/li>\n
    4. Manufacturing Overhead (Shared Machinery) = Allocation Rate (Amount per product) \u2190 Allocated by production volume<\/li>\n<\/ol>\n<\/div>\n

      Variance Analysis Between Actual and Standard Costs of Products
      \n\u25a0 Direct Material Cost Price Variance = (Actual Material Unit Price \u2013 Standard Material Unit Price) x Actual Usage
      \n\u25a0 Direct Material Cost Quantity Variance = (Actual Usage \u2013 Standard Usage) x Standard Material Unit Price
      \n\"Price
      \n\u25a0 Direct Labor Cost Wage Rate Variance = (Actual Wage Rate \u2013 Standard Wage Rate) x Actual Hours
      \nActual Wage Rate = Actual Direct Labor Cost \u00f7 Actual Working Hours
      \n\u25a0 Direct Labor Cost Working Hours Variance = (Actual Hours \u2013 Standard Hours) x Standard Wage Rate
      \n\"Wage
      \n\u25a0 Manufacturing Overhead Variance
      \nUsing a Schlatter diagram, fixed costs are treated similarly to variable costs (allocation rate x operating hours) based on standard operating hours (target), actual operating hours, and baseline operating hours (plan), within which actual manufacturing overheads are incurred.<\/p>\n

      Allocation Rate x Standard Operating Hours = Standard Variable Costs + Standard Fixed Costs
      \nAllocation Rate x Actual Operating Hours = Actual Variable Costs + Actual Fixed Costs
      \nAllocation Rate x Baseline Operating Hours = Baseline Variable Costs + Baseline Fixed Costs<\/div>\n
        \n
      1. Efficiency Variance (Difference on XY Graph)\n
        Efficiency Variance (Variable Cost Portion) = Actual Variable Costs \u2013 Standard Variable Costs
        \nEfficiency Variance (Fixed Cost Portion) = Actual Fixed Costs \u2013 Standard Fixed Costs<\/div>\n<\/li>\n
      2. Budget Variance\n
        Actual Variable Costs \u2013 Theoretical Actual Variable Costs (based on actual operating hours), representing the excess of actual manufacturing overheads over theoretical manufacturing overheads (allocation rate x actual operating hours) due to rising material costs or wage rates (variable cost allocation rates).<\/div>\n<\/li>\n
      3. Capacity Variance (Difference on XY Graph)\n
        Baseline Fixed Costs \u2013 Actual Fixed Costs, representing the loss due to the difference between baseline operating hours (full capacity) and actual operating hours<\/div>\n<\/li>\n<\/ol>\n

        \"Schlatter
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        Variance Analysis in Actual Cost Accounting vs. Standard Cost Accounting<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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        In standard cost accounting, not only direct material costs (things), which are variable costs, but also direct labor costs (people) and manufacturing overhead costs (machines), which are typically fixed costs, are treated as if they were variable costs. Then, material costs are analyzed into price variance and quantity variance, labor costs into wage rate variance and labor hour variance, and overhead costs into efficiency variance, capacity variance, and budget variance.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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        Costs Incurred Based on Production Results vs. Input Results in Cost Management Systems<\/h2>\n

        Non-rolling costing can be considered as costs incurred in the current month based on production volume, while rolling costing is based on input volume. Costs incurred based on the preceding process\u2019s production results become the input volume-based costs for the current process. Thus, material costs incurred become input volume-based costs for work-in-progress, and production volume-based costs for work-in-progress become input volume-based costs for finished goods.
        \nThe total material costs incurred for shared materials can be calculated using the three-way method by subtracting ending material inventory from the sum of beginning material inventory and current month\u2019s material purchases. However, item-specific material costs cannot be calculated using the three-way method unless the usage (e.g., kilograms per product) is tracked, so they are calculated based on the parent-child relationship of input results.
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        Costs Incurred Based on Production Results and Input Results in a Cost Management System<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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        Even if materials are received, if they are not used, the current month\u2019s incurred costs are 0. In this sense, the current month\u2019s incurred costs can be expressed as \u201cthe cost of materials used in the current month = incurred costs based on input.\u201d If there is no manufacturing, the manufacturing cost is also 0, meaning the manufacturing cost can be expressed as \u201cthe cost of items completed in the current month = incurred costs based on production results.\u201d If there are no sales, the cost of goods sold is also 0, meaning the cost of goods sold can be expressed as \u201cthe cost of items sold in the current month = incurred costs based on shipment results.\u201d<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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        Handling Fixed Costs in Indonesia When Production Results Span Months or When There\u2019s No Production<\/h2>\n

        Materials are not recognized as costs at the time of purchase but at the time of input, remaining as work-in-progress inventory until production results are recorded. They become manufacturing costs when production results are recorded and cost of goods sold when shipped.
        \nWhen input results and production results span across months, costs incurred inevitably remain in the current month\u2019s ending work-in-progress. If production results are still not recorded by the next month\u2019s end, work-in-progress remains without incurred costs.
        \nManufacturing costs represent the costs of items manufactured in the current month (based on production results), so if production is zero, manufacturing costs are also zero. Similarly, cost of goods sold represents the costs of items sold in the current month (based on shipping results), so if sales are zero, cost of goods sold is also zero.
        \nRegardless of production, depreciation expenses for machinery are incurred. Ideally, the portion attributable to the current month\u2019s products should become part of manufacturing costs, but this creates a contradiction when there\u2019s no production yet manufacturing costs exist. For tax purposes, since depreciation must be recorded monthly, it is transferred to selling, general, and administrative expenses or work-in-progress.
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        Handling Fixed Costs in Indonesia When Production Results Span Across Months and in Months Without Production<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

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        The costs incurred based on input results are direct material costs, the costs incurred based on production volume are manufacturing costs, and the costs incurred based on shipment are the cost of goods sold. When input results and production results span across months, the input results for the current month remain as ending work-in-process inventory, and if production results are not recorded by the end of the following month, the work-in-process remains without any costs incurred.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

        \u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<\/p>\n

        Understanding Standard Cost Calculation and Actual Cost Calculation Within the Same Framework<\/h2>\n

        Allocation rate refers to aggregating costs to a unit (process, line, or product group) that sums items without bias toward \u201cthe value of working hours or production volume,\u201d then dividing by total working hours to calculate a wage rate (amount per minute) or by total production volume to calculate an allocation rate (amount per unit)<\/span>.
        \nIn standard cost calculation, the planned production volume (sales volume) of products is used in a quantity breakdown calculation (required quantity) to determine the planned production volume of work-in-progress and planned purchase volume of materials, calculating direct material costs per product.
        \nAdditionally, a time breakdown calculation (required quantity x efficiency) determines planned direct working hours, calculating the primary allocation ratio for apportioning shared equipment depreciation to cost centers.
        \nBudgets for direct labor costs and manufacturing overheads aggregated to cost centers are apportioned based on production volume ratios or direct working hour ratios to calculate wage rates (allocation rates), determining direct labor costs and manufacturing overheads per product.
        \nIn actual cost calculation, actual allocation rates are calculated using total average unit costs and allocation calculations.<\/p>\n

        \n