ACCOUNTING MANAGEMENT

“Performance Evaluation”

“PT. Sopanusa”

By:

Eka Darmadi Lim 3094802

May Eka Saputri 3094814

Steven Auryn Hendro 3105812

Muhamad Restu Utomo 3104014

Julian Giovanni 3104812

Kevin Hanske 3104007

Class: Y

University of Surabaya

Faculty of Business and Economics

International Class IBN & PA

2012

I. General Description about PT Sopanusa Tissue and Packaging

The founder of PT Sopanusa is Mr. Dermawan Soeparsono. He built it on

May 1995 when he was 21 years old and under his rules, PT Sopanusa now has

three sister companies. Those sister companies are Star Paper Supply Co., Sun

Paper Source Co., and Superior Prima Sukses Co. Star paper supply is a business

in the major of papers, sun paper source is on the major of tissue, while superior

prima success is on the major of light brick. In the early period, PT Sopanusa run

with only one machine and a land of 20 hectares. It is located on Raya Ngoro 100

streets, Manduro Manggungajah village, Ngoro, Mojokerto district, which is

around 50 kilometres from Surabaya. Now, PT Sopanusa has five power mills.

The markets for PT Sopanusa is 87% export and 13% domestic. The products is

divided into two types, parent roll or work-in-process goods and finished goods.

The parent roll consists of facial tissue, toilet tissue, napkin or serviettes, paper

towel and MG paper. While the finished goods consist of cocktail, lunch, and

dinner napkins, bathroom roll (include coreless), facial tissue box and soft pack,

multifold hand towel, and kitchen towel. The sales proportions are 27% of jumbo

roll, 27% of napkins, 27% of towel, 11% of facial, 3% of finished goods, 3% of

MG paper, and 1% of toilet recycle. PT Sopanusa has acquired several

achievements, including that PT Sopanusa is set forth as a bonded area and get the

certificates of ISO 9001:2008, FSC Chain of Custody Certification, Proper Biru,

and so forth.

PT Sopanusa has 644 people working there, which consists of 181 staffs

and 463 non-staffs. The staffs’ minimum education is bachelor degree, while the

non-staffs do not any minimum requirement. The payroll systems are using bank-

transferred. If staffs, PT Sopanusa uses Bank Central Asia to transfer, while if

non-staffs, PT Sopanusa uses Mandiri Bank. The cultures of the company are

family and professionalism, the underlying reason is that the CEO wants to create

a comfort workplace without ignoring the importance of professionalism. Good

attitude, high integrity, smartness, loyalties, and passion are the values of the

company. With those values and cultures as the basis, PT Sopanusa continues to

grow its business. Three missions and a vision are therefore established. The

missions are PT Sopanusa commits their product quality and is willing to create

value for customers, continuously developing and upgrading every aspects and

divisions of the business, and developing stronger relationship to its

stakeholders.While the vision is to be recognized internationally as one of the

leading providers of quality tissue paper products. Today, 80%-90% of their

productions capacity serving customers in more than 60 countries across 5

continents.

2. Relevant Theoretical Framework

There are some activities in order to evaluate the performance, the

activities are named:

A. Responsibility center

B. Segmented Report

C. Transfer price

D. Performance investment

E. Budget Analysis

Let’s us discuss one by one from the whole activities in performance

evaluation.

A. Responsibility center

Meaning: Responsibility center is entity within an organization that gives

responsible to accountable manager to manage revenue, expenses, and

investment funds.

The four major types of responsibility centers are as follows:

Cost center = the manager is responsible only for

costs

Revenue center = the manager is responsible only

for sales

Profit center = the manager is responsible for both

sales and costs

Investment center = the manager is responsible for

sales, costs and capital investments.

This responsibility center is reflecting the actual situations and the

type of information available to the manager, in responsibility center the

key is information. The function of information is to appropriate the

managers responsible for outcomes.

B. Segmented report

Meaning: Segmented report is the report of the operating segments of a

company in divisions, departments, product lines, customer classes and so

on. However the fixed costs are defined into avoidable fixed expenses and

common fixed expenses. This condition is controllable and uncontrollable

costs that the responsibility for managers to evaluate and contribute each

segments to overall firm performance.

- Common fixed expense: Jointly caused by two or more segments

- Direct fixed expense: Fixed expense that directly traceable to a

segment.

C. Transfer price

Meaning: Transfer price is the price used for intra-company transfer, for

example between segments of a company, could be used in any situation

where the output of one segment becomes the input of another segment within

the same company ( department, operations, and process ) An example of

ABKY makes this point with an automobile dealership. A transfer price, or

value for a used car is needed when it is transferred from the new car

department (as a trade-in) to the used car department. The new car department

would like for the value to be high, while the used car department would

prefer a low value.

In transfer pricing policies, there are two definitions for each

division, as follow:

Minimum transfer price: Transfer price that would leave the

selling division no worse off if the good were sold to an

internal division than if the good were sold to an external party.

This is sometimes referred as the “floor” of the bargaining

range.

Maximum transfer price: Transfer price that would leave the

buying division no worse off if an input were purchased from

an internal division than if the same good were purchased

externally. This is sometimes referred to as the “ceiling” of the

bargaining range.

In transfer pricing there is also market price, cost based transfer prices, and

negotiated transfer prices.

Market price: If there is a competitive outside market for

the transferred product, then the best transfer price is

market price. Before we used market price, there is some

question to answer it, like will the two divisions transfer at

the market price? Is it really does not matter, since the

divisions and the company as a whole will be as well of

whether or not the transfer take place internally?

Cost based transfer prices: Is a method of setting prices

when goods are sold to divisions within in one company.

Several factors that affect the price like, production costs,

manager’s review, international taxation and competitors’

pricing. Before we used cost based transfer prices, there is a

question to answer it, if the policy is cost based transfer

pricing will the transfer take place?

Negotiated transfer prices this negotiated transfer prices are

useful in cases with imperfections market, such as the

ability of an in-house division to avoid selling and

distribution costs.

D. Performance investment

To measuring the performance investment, we can use ROI, Margin and

turnover, Residual income and economic value added.

Return on investment

Meaning: Return on investment (ROI) is profit or investment.

ROI = Operating income/average operating assets

Advantages using ROI:

It encourages managers to focus on the relationship among

sales, expenses, and investment as should be the case for a

manager of an investment center.

It encourages managers to focus on cost efficiency

It encourages managers to focus on operating asset

efficiency

Disadvantages using ROI:

It can be produced a narrow focus on divisional

profitability at the expense of profitability for the

overall firm

It encourages managers to focus on the short run at the

expense of the long run.

Margin and Turnover

Margin: the ratio of operating income to sales, it expresses

the portion of sales that is available for interest, taxes and

profit.

Turnover: different measure, it is found by dividing sales

by average operating assets.

Residual income and Economic value added

Residual Income : the difference between operating income

and the minimum money return required on a company’s

operating assets

Residual income: Operating income – (Minimum

rate of return * Average operating assets)

Economic value added: net income (operating income

minus taxes) minus the total annual cost of capital.

Economic value added: EVA – After tax operating

income – (actual percentage cost of capital * total

capital employed).

E. Budget Analysis

A master budget is a company's plan setting anticipated sales,

production, and distribution and financing goals over a year.

Managers create the master budget by preparing separate budgets

in departments such as sales, production and labor. A well-planned

master budget will clearly describe what the company expects to

accomplish in the upcoming year and how it intends to finance its

business operations. Preparing a master budget requires a high

level of planning and preparation by managers.

3. Management Accounting Application on Company

Because PT. Sopanusa is adopting the centralized strategy, so there are

only two factors that we will discuss in this section that are budget

analysis and segmented report for comparing the performance of exporting

and domestic selling. Below are the steps that PT Sopanusa used for

making the master budgeting:

1. Prepare a sales budget. A sales budget shows how many products that

they expects to sell in the coming year and the unit selling price.

Multiply the unit selling price by the total number of units expected to

be sold to arrive at the project's sales budget.

2. Prepare a production budget. A production budget list the number of

units to be produced for sale during the budgeted time period plus the

number of units to be left available in company inventory. Add to the

sales number the desired year-ending inventory and subtract the

inventory available at the beginning of the period to arrive at their

production budget figure.

3. Prepare a materials budget outlining the amount of raw materials

needed to achieve the total production figure as well as ending

inventory. The amount of raw materials needed for production plus the

desired ending balance of raw materials yields the total materials

required. Subtracting the inventory of raw materials available at the

beginning of the period yields the materials budget figure.

4. Prepare a labor budget. A labor budget describes the amount of money

required to pay for the number of labor hours necessary to achieve the

budgeted production level. Multiply the amount of labor required in

hours per unit produced by the total production figure to arrive at total

labor hours. Multiply the total labor hours by the hourly labor cost to

arrive at the labor budget figure.

5. Prepare the overhead budget, which describes all costs of production

other than materials and labor. Include in this figure management

salaries and money paid to the company's sales force and all other

employees not directly related to production of the finished product.

6. Prepare a cash budget. The cash budget describes how the company

will use its cash resources during the budget period. Identify all cash

receipts to be collected during the budget period except for any finance

funding. Identify all cash disbursements to be paid during the budget

period. Subtract total disbursements from cash receipts and add the

beginning cash balance to arrive at the excess or deficiency cash

position. If the company operates at a cash deficiency, it will probably

require some form of financing to support operations.

7. Prepare a budgeted income statement that describes the amount of

profit the company expects to make based on its level of production

and sales. The budgeted income statement is different from the income

statement and allows management to evaluate the company's progress

during the year.

SAMPLE MASTER BUDGET FOR PT.

SOPANUSA

SALES BUDGET

No of Units Sold xxx

Cost per unit xxx

Sales xxx

PRODUCTION BUDGET

Budgeted Sales xxx

Desired Closing Stock xxx

Total Units Needed xxx

Less Opening Stock xxx

Units to produce xxx

COST OF GOODS SOLD

Budgeted Unit Sales xxx

Direct Materials x per unit xxx

Direct Labor x per unit xxx

Manufacturing Overheads x per unit xxx

Total

xxx

OPERATIONAL EXPENSES

BUDGET

Units to be produced xxx

Cost of Materials x per unit xxx

Cost of Direct Labor x per unit xxx

Cost of Overheads x per unit xxx

SELLING EXPENSE BUDGET

Commission x per unit xxx

Rent

xxx

Transportation

xxx

Advertising

xxx

Depreciation of Machinery and

Office

xxx

Others

xxx

Less Depreciation

xxx

Net Selling Expenses

xxx

ADMINISTRATIVE EXPENSE

BUDGET

Salaries

xxx

Insurance

xxx

Telephone & Communications

xxx

Supplies

xxx

Bad Debts

xxx

Others

xxx

xxx

INCOME STATEMENT

Sales

xxx

Cost of Goods Sold

xxx

Operating Expenses

.- Selling

xxx

.- Administrative

xxx

Net Income from Operations

xxx

Interest Expense

xxx

Net Income Before Tax

xxx

Federal Income Tax (25%)

xxx

Net Income

xxx

CASH BUDGET

Opening Balance

xxx

Cash Recepits

xxx

Total Cash

xxx

Cash Payments

.- Direct Materials

xxx

.- Direct Labor

xxx

.- Manufacturing Overhead

xxx

.- Selling Expense

xxx

.- Administrative Expense

xxx

.- Income Tax

xxx

.- Interest Expenses

xxx

Total Cash Payments

xxx

Net Cash Avaliable

xxx

BALANCE SHEET

ASSETS

LIABILITIES

Current Assets

.- Cash xxx

Accounts

Payable xxx

.- Accounts Receivables xxx

Total Liabilities

xxx

.- Raw Materials xxx

.- Finished Goods xxx

Net Income

xxx

Total Current Assets xxx

Retained

Earnings

xxx

Owner's Equity

xxx

Fixed Assets

.- Land xxx

.- Building xxx

Less Deprecation xxx

Total Fixed Assets xxx

Total Assets xxx

Total Liability

xxx

After we take a look at how they make the budgeting, now we will take a closer

look at the segmented reporting to compare how the performance of the company

about domestic selling compared to export is.

4. Analysis Based on the Theory

PT. Sopanusa use centralized system in managing their operation. This

centralized operation system makes them difficult to develop their

business to a larger one. For the long run of the business of the company,

they should make segmented operation on doing business. In doing

business with segmented operation they should make new branch

operations which will that care of producing their own raw material for the

manufacture.

The purpose of making branch of PT. Sopanusa is for producing their own

raw material to support their manufacturing process to suppress the long

run cost from buying raw material, flexibility, and control. If they use

decentralized decision making they will have several benefit which are (1)

ease of gathering and using local information; (2) focusing of central

management; (3) training and motivating of segment managers; and (4)

enhanced competition. As for now PT. Sopanusa only has a subsidiary for

the package of the tissue and PT. Sopanusa pays the package based on the

market price.

Segmented Reporting

To evaluate the performance of each segment the company can use

several ways depends on which responsibility center the company want to

evaluate. There are four major types of responsibility centers:

Cost center – the manager is responsible only for costs

Revenue center – the manager is responsible only for sales

Profit center – the manager is responsible for both sales and costs

Investment center – the manager is responsible for sales, costs

and capital investment

If PT Sopanusa decides to use decentralize system they need to evaluate

each division correctly. For example if they decide to build their own

subsidiary to provide their raw material, this subsidiary will be evaluated

as cost center because they need to evaluate the costs of producing raw

material.

There are different ways to measure the performance of each

responsibility center. To measure profit center which is responsible for

both sales and costs, the company can use variable and absorption

income statements. Variable costing only calculate variable

manufacturing costs of the product while fixed overhead treated as a

period expense. Absorption costing assigns all manufacturing costs to the

product. Performance of investment center can be measured by using ROI

(Return of Investment) which the profit is earned per dollar/rupiah of

investment.

P.T Sopanusa, have many option and competitor in the market, our main

product in P.T Sopanusa the Jumbo Roll that give us net profit 40%, and

the final goods give us profit around 10 – 20%, but before we count one

by one the detail of cost, we can’t find which product that give us the

higher profit, and which product give us lower profit.

Responsibility Accounting System

Responsibility accounting system is a system that measures the result of

each responsibility center according to the information managers need to

operate their center.

Because PT. Sopanusa is involved in producing paper tissue, they operate

in an environment where change is fluctuated. This is happened because

the demand from the buyer is various, from the texture, size, color,

thickness, tissue flexibility, etc. Products and processes are constantly

being redesigned and improved also the competitor always present. This

means PT. Sopanusa must find cost efficient ways of producing high

variety, but in high volume products. This usually means PT. Sopanusa

must pay attention in improving cost, quality, and response times in value

chains. So, PT. Sopanusa should improve in performance by reducing

waste.

Budgeting and Budgetary Control

Because we suggest PT. Sopanusa to make subsidiaries companies, so PT.

Sopanusa should make short term and long term objectives. We suggest, in

short term objective PT. Sopanusa the budget is allocated for buying

property for the subsidiaries company. In long term, the budget is

allocated for waste reduction, and operational cost. In making budget

decision they should use the information given by the income statement

accompanied by sales budget, production budget, direct material purchases

budget, direct labor budget, overhead budget, selling and administrative

expenses budget, ending finished goods inventory budget, and cost goods

sold budget.

Transfer Pricing

Because one of the PT. Sopanusa raw material is imported from

Scandinavia, so our group suggest PT. Sopanusa to expand their company

to the Scandinavia to handle the selling division for the raw material.

The selling division in Scandinavia can pre-produce the raw material, for

example drying the raw material before imported to Indonesia. Because

the selling division operates in high tax country (Scandinavia) and the

buying division operates in low tax country (Indonesia), the transfer price

may be set low because the destination tax is quite low.

For now PT Supanusa already has subsidiary for the packaging of the

goods produced. The transfer pricing method with this subsidiary is a

market price system. Their decision of using market price method in their

transfer pricing is right because market price method is best used when

there are competitive outside market for the product. This decision will

optimize the profit of both division and the firm.

5. Conclusion

In conclusion, PT Sopanusa have already did a great job in managing its

Master budget.. PT Sopanusa well-planned their revenue budget,

expenditure budget, production budget and payroll budget. A well-planned

master budget will clearly describe what the company expects to

accomplish in the upcoming year and how it intends to finance its

business operations. This will help their company to keep growing and

also take some of our team recommendations by segmenting their

operation. That somehow will make a positive impact for PT Sopanusa in

the long run.

6. References

Teaching material “ Managerial Accounting” 8th

edition by Don R Hansen

and Maryanne M. Mowen

Teaching material “Cost Accounting” 13th

edition by Pearson

International Edition

http://www.businessdictionary.com/definition/responsibility-center.html

http://www.accountingtools.com/questions-and-answers/what-is-segment-

reporting.html

http://www.ehow.com/about_6299442_definition-cost_based-transfer-

pricing.html

http://www.ehow.com/how_7732914_complete-master-budget-managerial-

accounting.html

http://sopanusa.co.id/eng/