CHAPTER III

PT PINDAD’S STANDARD AND PRODUCTION COST

3. Company Profile

PT. PINDAD is an Indonesian manufacturing industry specializing in military and

commercial products. Its activities are covering design, development, engineering and
fabrication as well as maintenance. Founded in 1808 as military equipment workshop
in Surabaya under the name of Artillerie Constructie Winkel (ACW), this workshop
expanded into a factory and after it had undergone same name change, it moved
to Bandung in 1923.The Dutch handed over the factory to Indonesian Government on
April 29, 1950. Then, they said that the factory was officially named Pabrik Senjata dan
Munisi (PSM), means weapon and ammunition factory, and located in where PT.
PINDAD lies now. Since then PT. PINDAD had change into an industry of military tools
and equipment under the management of Indonesian Army. PT. PINDAD
changed its status into a state owned company called PT. PINDAD (Persero) on April 29,
1983. The agency change into PT. Pakarya Industri (Persero) and then changed again into
PT. Bahana Pakarya Industri Strategis (Persero). In the year of 2002 the status of PT.
PINDAD (Persero) was again changed by the government, and since then the company is
under BUMN.

 CORPORATE MISSION

PT Pindad’s corporate mission is to carry out business activities in manufacturing "tools

and equipments to back up the autonomy in national defense and security" as well as
"industrial tools and equipment" with profit oriented for the corporate growth through
excellence of technology and efficiency. 

 CORPORATE VISION

PT. PINDAD has vision to be a healthy company with integrated core businesses,
flexibly operation and financially autonomous.

 ORGANIZATION

To raise the corporate competitiveness, PT. PINDAD has developed flexible and
decentralization organization design in order to improve its divisions so that they can be
more flexible to conduct their businesses.

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  HUMAN RESOURCES

The human resources that PT. PINDAD owns are the professionals with special
competencies in weapons technology, metallurgy, machinery and so forth. Their skills are
shaped with experiences and special trainings. Human resources development refer to
competency based human resources management integrating all the policies in the field
of career, training, recruitment, work achievement assessment and et cetera.

 BUSINESS FIELDS

The business activities in manufacturing a variety of military and commercial products

formed the core activities of the company. The factories and offices located
in Bandung and Turen, Malang, as well as the marketing office in Jakarta, support
business success of the two product groups mentioned above. Four divisions in Bandung
run the business activities for commercial products which are; Mechanical Division that
produces ship equipments and air brakes as well as industrial machineries, Electrical
Division that produces electrical motors and power plan equipments, Casting and Forging
Division that produces forged and casting components, and Industrial Engineering and
Services Division that produces factory equipments and provides services for factory
erection and testing calibration. Weapon Division that specialized in the production of
military products with long and short barrel weapons is also located in Bandung. The
other Division in Turen, Malang, produces such various kinds of ammunitions and
explosives as well as commercial explosives, such as being use in the field of mining.

 QUALITY ASSURANCE

Products and services quality that meet the customer requirement as much as influential
in corporate business success, PT. PINDAD has applies quality management system
which follows the standard ISO 9001/9002 and ISO Guide 25. To keep the corporate
commitment of product quality, the motto "No Compromise for Quality" has become the
base way of thinking and performance of all the corporate operational units.
The management commitment consistency is well maintained by doing improvement and
adjustment by integrated quality management system. So the products manufactured by
PT. PINDAD are expected to meet customer satisfaction and in the end will build the
customer loyalty to PT. PINDAD's products.

 BUSINESS DEVELOPMENT

In addition to gain new profitable and competitive business, the development is basically
an effort to perfect and/or to refine the existing business through the application of
sophisticated method and technology, so that the competitive business with cost and
quality required by the market is obtained. To meet the natural demand in order to

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 survive and develop in an unstable economic condition, PT. PINDAD has done some
effort of business reorientation and development so that the company can perceive its
external environment change better. To follow up the effort done in the previous years, in
2001 new businesses had been initiated supported with owned competency. These new
businesses are supposed to give sufficient contribution to the company in the years to
come.

 ENVIRONMENT

While we are increasing the performance of PT. PINDAD, we are also aware to keep the
company as friendly as possible with our surrounding natural environment. At present,
60% of our plan is set for greeneries including some rare trees. The most interesting thing
is that in such a harmonious environment, live more than 30 species of birds.

 ORGANIZATION STRUCTURE

Organization structure is a mainly hierarchical concept of subordination of entities that

collaborate and contribute to serve one common aim. Organizational structure allows the
expressed allocation of responsibilities for different functions and processes to different
entities such as the branch, department, workgroup and individual. Individuals in an
organizational structure are normally hired under time-limited work contracts or work
orders, or under permanent employment contracts or program orders. PT PINDAD’s
organization structure consists of:

Board of Directors

“Pimpinan Teras”

Staff Assistant Directors Business Units

The breakdown of Staff Assistant Directors and Business Units can be seen in next page.

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 Staff Assistant Directors

Ka SPI Kasetper Kapuspam Dedirrenbang Dediprodukmil Dedirpodukom Dedirminku

Business Units

Kadivmu Kadivjat Kadiv MI and Service Kadiv TC Kadiv Rekin Ka Unit Bang KFK

3.1 Products of PT Pindad

Here’s the small example of PT Pindad’s product

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3.2 Production Unit Cost
Based on the research on the Maria Wulansari of Widyatama University (2005), before
the production process started, the accounting and production department hold a meeting
to discuss the production planning. The objective is to know how much fund that is
needed in order to run the production. In calculating the production planning process, the
basic things that we should know are the calculation of direct material, direct labor, and
overhead cost. The procedure that PT Pindad used was the historical cost or in other
words, the sunk cost.

3.3 The Standard Direct Material Cost Establishment

a. Material Standard
The material standard is designed by the director of PT Pindad with production,
financing, and purchasing managers. This action is required to let everyone knows
that the standard is based on everyone’s will. The material standard is set
according to the market price right now.
Here’s the material standard in 2004
No Material Name Standard Price
1 Pasir Silica 60-80 Rp1,230
2 Bentonite Rp7,661
3 Coal Dust Rp9,455
4 Baja Scrap ex automotive Rp3,371
5 Carburizer Rp18,932
6 Fe Si Rp6,285
7 Fe Si MG 522 Rp6,720
8 Inoculant Rp5,188
9 Slag Removel Rp3,785
10 Quic Cup Rp1,950
Source : PT Pindad (Persero) Accounting Department

b. Quantity Material Standard

Quantity standard that PT Pindad used is based on experiment about the type and
quality needed. Because the standard is based on the sunk cost, so, the production
department used their previous experience that will be analyzed by the accounting
department.

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 No Material Name Denomination Quantity Standard(million units)
1 Pasir Silica 60-80 KG 137,200
2 Bentonite KG 110,800
3 Coal Dust KG 27,760
4 Baja Scrap ex automotive KG 77,080
5 Carburizer KG 30,876
6 Fe Si KG 7,440
7 Fe Si MG 522 KG 27,120
8 Inoculant KG 12,080
9 Slag Removel KG 4,040
10 Quic Cup Unit 1,320
Source : PT Pindad (Persero) Accounting Department

Total Standard Direct Material Cost

For 2004

N Denominatio Quantity
o Material Name n Standard Price Standard Total
Rp168,756,00
1 Pasir Silica 60-80 KG 137,200 Rp1,230 0
Rp848,838,80
2 Bentonite KG 110,800 Rp7,661 0
Rp262,470,80
3 Coal Dust KG 27,760 Rp9,455 0
Baja Scrap ex Rp259,836,68
4 automotive KG 77,080 Rp3,371 0
Rp584,544,43
5 Carburizer KG 30,876 Rp18,932 2
6 Fe Si KG 7,440 Rp6,285 Rp46,760,400
Rp182,246,40
7 Fe Si MG 522 KG 27,120 Rp6,720 0
8 Inoculant KG 12,080 Rp5,188 Rp62,671,040
9 Slag Removel KG 4,040 Rp3,785 Rp15,291,400
10 Quic Cup Unit 1,320 Rp1,950 Rp2,574,000

Source : PT Pindad (Persero) Accounting Department

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 Budgeted Production Cost
For 2004

N
o Material Name Budget
Rp168,756,00
1 Pasir Silica 60-80 0
Rp848,838,80
2 Bentonite 0
Rp262,470,80
3 Coal Dust 0
Rp259,836,68
4 Baja Scrap ex automotive 0
Rp584,544,43
5 Carburizer 2
6 Fe Si Rp46,760,400
Rp182,246,40
7 Fe Si MG 522 0
8 Inoculant Rp62,671,040
9 Slag Removel Rp15,291,400
10 Quic Cup Rp2,574,000

Source : PT Pindad (Persero) Accounting Department

3.4 Direct Labor Standard

The direct labor standard in PT Pindad consists of:
a) Time Standard
The time standard in PT Pindad is based on “Rencana Kerja Anggaran Perusahaan”.
The detail of this RKAP consists of:
 Normal capacity in 1 year is 1 million units
 The number of days required in a month is 21 days.
 The time hours required per day is 7 hours.
 The number of workers in 1 day is 100
 The effective labor hour is as follows:
100 x 7 hour/day x 21 days x 12 months = 176.400 hours
 Every one hour produces 567 units
 Direct labor rate standard:
100 people x Rp1.500.000/month x 12 months = Rp 1.800.000.000

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  Labor wage rate standard to produce 1 million units of shoulder is:
sum of direct labor cost Rp 1. 800 . 000 .000
Tariff = = = Rp 10. 204/hours
sum of direct labor hour 176 . 400 hours
 Direct Labor Standard per one shoulder is:
1. In one hour everyone produces 6 shoulders
2. Every one shoulder requires:
60 minutes
=10 minutes
6 units
= 10 minutes/60 hours = 0.166 hours

So, the direct labor standard per one shoulder is:

= 0.166 hours x Rp 10.204 = Rp 1.694 / units.
b) Standard Direct Labor Wage Rates
To determine the labor wage rates, the management of PT Pindad set the minimum of
Rp 1.500.000 with financial incentives and the other facilities like: food allowance,
transportation allowance, healthy allowance, insurance allowance, and tax allowance.

3.5 Overhead Standard

Before set the overhead standard, Pindad has to set the capacity that is considered as the
normal capacity with the average of actual production for one year.

No Normal Capacity Overhead Budget

1 Auxiliary raw material costs Rp520,089,000
2 Indirect Labor Cost Rp244,200,000
3 Machine Depreciation Rp59,760,000
4 Machine Maintenance Rp67,800,000
5 Building Depreciation Rp34,200,000
6 Building Maintenance Rp32,880,000
7 Employee's Wealth Rp30,600,000
8 Electricity and Telephone Rp49,500,000
Total Rp1,039,029,000

Source : PT Pindad (Persero) Accounting Department

Overhead tariff calculation:

1. Overhead Standard Tariff
sum of overhead Rp 1. 039 . 029. 000
Tariff = = = Rp 5. 890,18 / hour
direct labor hours 176 . 400 hours
2. Overhead rate per one shoulder
= 0.166 hour x Rp 5.890,18 = Rp 977.76 / shoulder

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 Based on the calculation of direct material cost, direct labor cost, and overhead cost, the
standard price of every shoulder is:
 Direct Material Cost Standard = Rp 2.433,99
 Direct Labor Cost Standard = Rp 1.694
 Overhead Standard = Rp 977.76
Total = Rp 5.105,75

3.5 Production Variance Analysis

 Direct Material Usage Variances
The formula to calculate it is:
(Standard Quantity – Actual Quantity) x Standard Price/unit
Quantity
N
Material Name Standar Standard Price Difference
o
d Actual
137,20
1
Pasir Silica 60-80 137,200 0 Rp1,230  
110,80
2
Bentonite 110,800 0 Rp7,661  
3 Coal Dust 27,760 27,750 Rp9,455 Rp94,550
Baja Scrap ex
4
automotive 77,080 77,080 Rp3,371  
5 Carburizer 30,876 30,870 Rp18,932 Rp113,592
6 Fe Si 7,440 7,440 Rp6,285  
7 Fe Si MG 522 27,120 27,000 Rp6,720 Rp806,400
8 Inoculant 12,080 12,000 Rp5,188 Rp415,040
9 Slag Removel 4,040 4,010 Rp3,785 Rp113,550
10 Quic Cup 1,320 1,320 Rp1,950  

Total Rp1,543,132

Sources : PT Pindad (Persero) Accounting Department

A couple of possible factors that caused this difference are:

o Poor inspection
o A change in production composition

Two things that Pindad has to do is increasing the inspection and inform the production
department as soon as possible when there is a change in the production composition.

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 Material Price Variances
The formula is:
Actual quantity x (standard price/unit – actual price/unit)

Price Actual
No Material Name Difference
Standard Actual Quantity
1 Pasir Silica 60-80 Rp1,230 Rp1,225 137,200 Rp686,000
Rp19,390,00
2
Bentonite Rp7,661 Rp7,486 110,800 0
3 Coal Dust Rp9,455 Rp9,451 27,750 Rp111,000
4 Baja Scrap ex automotive Rp3,371 Rp3,370 77,080 Rp77,080
Rp18,93 Rp18,00 Rp28,770,84
5
Carburizer 2 0 30,870 0
6 Fe Si Rp6,285 Rp6,285 7,440  
7 Fe Si MG 522 Rp6,720 Rp6,718 27,000 Rp54,000
8 Inoculant Rp5,188 Rp5,180 12,000 Rp96,000
9 Slag Removel Rp3,785 Rp3,785 4,010  
10 Quic Cup Rp1,950 Rp1,950 1,320  
Rp49,184,92
Total
0

The 2 possibilities in the difference between the standard quantity and the actual quantity
are:
o Fluctuation of price in the materials
o There is additional cost

A possible way to handle this difference is by choosing the right supplier and look for
discount advantages.

 Direct Labor Variances

The formula is:
(standard wage rate – actual wage rate) x actual working hours
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 Actual Wage Standard Wage Actual Working
Rate/hour Rate/hour Hours Differences
Rp4,939,20
Rp1,666 Rp1,694 176,400 0

At the other hand, the formula to calculate the labor efficiency variance is:
(standard hour – actual hour) x standard wage rate/hour
Actual Hour Standard Hour Actual Work Differences
176,400 176,400 Rp1,694 0

Total Variance in 2004

Labor Rate Variance Efficiency Variance Total Variance

Rp4,939,200 0 Rp4,939,200

In 2004, there is a favorable variance in the wage rate because it is lower than the
standard. The efficiency rate also has no change since it is not higher or lower than the
standard.

3.6 Overhead Variance

Here is the overhead variance for both the fixed and variable overhead in PT Pindad.
Overhead
Normal Capacity Production Standard Actual Overhead Difference
Fixed Cost      
Employee's Wealth Rp30,600,000 Rp20,985,000 Rp9,615,000
Machine Depreciation Rp59,760,000 Rp59,570,000 Rp190,000
Building Depreciation Rp34,200,000 Rp33,990,000 Rp210,000
Rp10,015,00
  Rp124,560,000 Rp114,545,000 0
Variable Cost      
Auxiliary raw material costs Rp520,089,000 Rp513,590,000 Rp6,499,000
Rp35,660,00
Indirect Labor Cost Rp244,200,000 Rp208,540,000 0
Rp10,930,00
Machine Maintenance Rp67,800,000 Rp56,870,000 0
Building Maintenance Rp32,880,000 Rp29,678,000 Rp3,202,000
Electricity and Telephone Rp49,500,000 Rp42,150,000 Rp7,350,000
Rp63,641,00
  Rp914,469,000 Rp850,828,000 0
Rp73,656,00
Total Rp1,039,029,000 Rp965,373,000 0

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