ANALYSIS OF SELLING, GENERAL AND ADMINISTRATIVE COST STICKINESS ON NET SALES AT DIFFERENT ECONOMIC CONDITION
(Empirical Study of Manufacturing Company Listed in the Indonesia Stock Exchange)
Astri Novianti & Primanita Setyono
I. INTRODUCTIONAccording to Cashin & Polimeni (1998, p.19), cost is defined as the benefits given up to acquire goods or services. It means that cost is spent out by company in order to this company gets benefits in the future. Related to volume, there are three kinds of cost varied with changes in the volume of production; fixed cost, variable cost, and semi-variable cost. Three of these costs have different behavior depending on the change of input or output. In traditional theory of cost behavior, cost is divided into fixed and variable cost in which cost responses mechanically to activity volume. Mechanical means that cost adjust without management intervention (based on production schedule). However, there are many arguments regard to this characterization of cost behavior which is inconsistent with the way that managers manage cost (Cooper & Kaplan, 1998 cited in Anderson & Lanen, 2007), such as the action of managers in deliberately adjusting resources as response to changes in volume. This matter effects on costs which increase more when volume rises than they decrease when volume is fallen by an equivalent amount. It is called as sticky cost. From the definition, it is shown that sticky cost is an asymmetric reaction to activity change.
The degree of asymmetric cost behavior varies as result of deliberate decisions by managers associated with adjustment cost (Anderson, Chen, & Young, 2005). For example in Windyastuti & Biyanto (2005) research; In their research, they found that the degree of cost stickiness increase with asset intensity but not with employee intensity. In order to test the stickiness, it is used selling, general and administrative (SG&A) cost as cost proxy and net sales as the relevant driver proxy. There are some considerations using SG&A as cost proxy, as follows: 1) in previous research, it is shown that sticky is found in operation cost than other cost categories (Anderson, et al, 2005), 2) according to Hansen & Mowen (2000, p. 46), in manufacture organization, the rate of this cost can be significant (± 25% of sales) and by controlling them, manufacture can lean in bigger amount rather than other production costs. While, the rate of SG&A cost of net sales in this sample is ± 12.3%. Inasmuch as SG&A cost is the subjected of managerial discretion, this costs tend to have an asymmetric cost behavior. Hence, it is important for us to know how managers manage this cost because the ratio of selling, general and administrative costs to sales are closely monitored by investors and analysts (Palepu, Healy & Bernard, 2000 cited in Anderson, et al, 2006).
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