Application of Differential Accounting Information in Management Decision Making to Continue or Discontinue Product Production at Charly SME in Beong Village, Siau Tengah District

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FORMOSA NEWS - Manado - Differential Accounting Helps Indonesian SME Identify Profitable Products and Cut Loss-Making Lines. A 2026 study by Cicilia Aprili Sompotan, Rudy Pusung, and Sherly Pinatik from Sam Ratulangi University finds that differential accounting information can significantly improve management decision-making in small businesses. The research, published in the Formosa Journal of Applied Sciences, examined UMKM Charly in Beong Village, Siau Tengah District, North Sulawesi, and evaluated whether the company should continue or discontinue specific snack products. The findings matter because many Indonesian micro and small enterprises rely on intuition rather than financial analysis, often resulting in thin margins or break-even operations.

Background: SMEs Face Thin Margins and Intuitive Decision-Making
UMKM Charly produces nut-based snacks including Halua Kenari, Fried Cashews, and Disco Peanuts. Like many small food businesses, it faces fluctuating demand, limited financial tracking, and narrow profit margins. Prior to the study, management decisions were based largely on intuition rather than formal accounting analysis. The business had been operating near break-even since early 2025, meaning revenue only covered costs without generating meaningful profit. This situation reflects a broader challenge among micro enterprises. Without separating product-level costs and revenues, owners cannot identify which items contribute to profit. Differential accounting offers a solution by focusing only on costs and revenues that change depending on decisions, allowing managers to evaluate whether production should continue or stop.

Research Methodology
The researchers used a qualitative case-study approach conducted at UMKM Charly between July 2025 and early 2026. Data collection combined:

• Semi-structured interviews with owner Lisa Christiani and employee Fanny Makikama.
• Financial documentation including production costs and sales data.
• Product-level cost analysis.
• Differential profit calculations.

The analysis categorized costs into raw materials, labor, overhead, and non-production expenses. These figures were then compared across three products to determine differential cost, differential revenue, and differential profit.

Key Findings
Monthly Profitability by Product

The study calculated differential profit for each product:

• Halua Kenari: profit of IDR 371,070 per month.
• Fried Cashews: profit of IDR 567,000 per month.
• Disco Peanuts: loss of IDR 391,965 per month.

Fried Cashews generated the highest profit and had the lowest production cost per unit. Disco Peanuts had the highest cost per unit, mainly due to multiple ingredients and more complex processing.

Production and Cost Structure

• Total monthly production: 525 packages.
• Total revenue: IDR 5,250,000.
• Total production cost: approximately IDR 4.7 million.
• Net monthly profit: IDR 546,105.

Despite overall profit, the contribution varied widely across products. Halua Kenari and Fried Cashews accounted for nearly all positive earnings, while Disco Peanuts reduced total profitability.

Differential Cost Analysis
The researchers identified that Disco Peanuts had the highest differential cost:

• Raw materials: IDR 9,933 per unit.
• Direct labor: IDR 2,000 per unit.
• Overhead: IDR 1,800 per unit.
• Total differential cost: IDR 13,733 per unit.

This exceeded the selling price, creating a consistent loss. In contrast, Fried Cashews had the lowest cost structure and strongest margin.

Real-World Impact
The findings highlight several benefits for SMEs:

• Improves product-level profitability decisions.
• Reduces losses from inefficient products.
• Optimizes resource allocation.
• Supports data-driven management.
• Strengthens business sustainability.

For small food producers, the approach allows owners to shift from intuition to evidence-based decision-making. This is especially relevant in competitive markets where small cost differences can determine survival. The researchers emphasize that differential accounting helps managers focus only on relevant costs and revenues, leading to more rational and efficient decisions.

Author Profiles
Cicilia Aprili Sompotan, S.E. Bachelor of Accounting, Sam Ratulangi University
Field: Management accounting and SME financial analysis
Rudy Pusung, S.E., M.Acc Lecturer in Accounting, Sam Ratulangi University

Field: managerial accounting and cost analysis
Sherly Pinatik, S.E., M.Si Lecturer in Accounting, Sam Ratulangi University
Field: financial decision-making and SME accounting systems.

Sources
Cicilia Aprili Sompotan, S.E, Rudy Pusung, S.E., M.Acc., & Sherly Pinatik, S.E., M.Si  (2026). “Application of Differential Accounting Information in Management Decision Making to Continue or Discontinue Product Production at Charly SME in Beong Village, Siau Tengah District” Formosa Journal of Applied Sciences (FJAS), Vol. 5 No. 2, 2026 Hal 521-540.
DOI: https://doi.org/10.55927/fjas.v5i2.3
URL: https://journalfjas.my.id/index.php/fjas