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Clinton, B. D. and D. E. Keys. Not Dated. Resource consumption accounting: The next generation of cost management systems. Focus Magazine (5): 1-6.

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

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According to Clinton and Keys, dynamic, complex organizations need cost management systems that are dynamic, integrated and comprehensive. Methods previously used, such as ABC and ABM, do not meet these requirements. Resource consumption accounting (RCA) is presented as a system that fits this description combining German cost management with activity-based costing and focusing on resources rather than cost objects. The purpose of this paper is to outline the main elements of a resource consumption accounting cost management system.

Different Approaches to RCA

There are three ways to use RCA:

It can be applied as a complete system,

It can be implemented incrementally, and

It can be used subjectively without changing the current system.

When to Use RCA

RCA should be considered if a company has unplanned wasted resources, complaints from managers related to charges for idle capacity costs, distorted decisions related to products, a shortage of resources, undercosting of resources in cost planning, inadequate information for outsourcing decisions, or lack of information for performance evaluation.

The Three Pillars of RCA

1. RCA is resource focused, but comprehensive. It recognizes reciprocal resources and services including drivers for all resource pools and consumer interrelationships. Capacity for all resources is defined in terms of theoretical or practical volume so that idle or excess capacity becomes visible and is not charged to products or other cost objects. Simultaneous allocations are made to recognize both reciprocal and nonreciprocal relationships.

2. RCA decouples output from dollar valuation by using a quantifiable output measurement for each resource pool. According to the authors, this decoupling provides a clear distinction between resource consumption and cost assignments, and facilitates both capacity analysis and variance analysis.

3. RCA recognizes that costs are either fixed or proportional in terms of resource consumption, and that the nature of proportional costs may change from proportional to fixed in some situations.

Capacity Management

RCA defines capacity in relation to resources, not in relation to activities. Although unused resource costs (excess or idle capacity) are reported as variances, these costs are never allocated to individual products. The idea is to make the unused capacity visible to promote accountability for capacity utilization and to facilitate resource acquisition decisions.

Activity Based Resource Planning

RCA budgeting and planning includes the following steps that are the reverse of costing output:

1. Determining resource pool level unit standards.

2. Determining resource output consumption unit standards for consumers.

3. Estimating planned resource output demand.

4. Converting planned resource output demand into monetary terms.


Related summaries:

Gaiser, B. 1997. German cost management systems. Journal of Cost Management (September/October): 35-41. (Summary).

Gaiser, B. 1997. German cost management systems (part 2). Journal of Cost Management (November/December): 41-45. (Summary).

Keys, D. E. and A. van der Merwe. 1999. German vs. U.S. cost management. Management Accounting Quarterly (Fall): 19-26. (Summary).

Keys, D. E. and A. van der Merwe. 2002. Gaining effective organizational control with RCA. Strategic Finance (May): 41-47. (Summary).

Sharman, P. A. 2003. Bring on German cost accounting. Strategic Finance (December): 30-38. (Summary).

Van der Merwe, A. and D. E. Keys. 2002. The case for resource consumption accounting. Strategic Finance (April): 31-36. (Summary).