Gaining Control with Resource Consumption Accounting

According to Keys an van der Merwe, resource consumption accounting (RCA) is a control solution with a focus on actual versus predicted results that will surpass ABC/ABM. They state that ABC/ABM based on the CAM -I cross, while somewhat effective, has several shortcomings. The main problem is that the focus of ABC/ABM is too narrow in that these methods ignore the various levels of management and the layers or tiers within those levels. RCA, on the other hand is based on a cube that recognizes all these levels and layers within the organization. The comprehensive nature of RCA is indicated in the discussion and illustrations below.

RCA has four control mechanisms including:
    Management planning and control tiers,
    Authorized reporting,
    A reflective view of operations, and
    Extensive variance analysis.

As indicated in the adaptation of Figure 1 below, RCA recognizes three levels of management (strategic, tactical and operational) and four management planning and control tiers (resource tier, process/activities or value chain tier, product/service tier, and market segment or results tier). According to Keys and van der Merwe, the RCA cube provides a potential alternative to the CAM -I cross.

Another difference between ABC/ABM and RCA is the introduction of authorized reporting (See Tables 1 and 2 below). Authorized reporting is similar to flexible budgeting. It allows for activity budgeted costs to shift up or down (flex) according to the market environment throughout the period. Using authorized costs to compare budgeted costs with actual costs provides a better basis for developing variances. Authorized reporting combined with the different planning and control tiers ensures that all areas of a company receive relevant performance information. The different tiers can accurately reflect the different factors that affect them in developing the authorized reports. The example presented in the tables below illustrates the main concepts related to authorized reporting.

Planned Output and unit Standards to be Used for Authorized Reporting*

Plan/Actual/ Static Variance Report			Output: Equipment Hours
Resource Pool: Apron Services			Planned Quantity: 10,000			Actual Quantity: 9,000

Primary Costs				Plan Fixed	Plan Prop	Actual	Variance
Diesel Fuel				-	40,000	37,000	(3,000)
Depreciation				25,000	-	25,000	-

	Quantity Consumption
Secondary Costs	Plan Fixed	Plan Prop	Actual
Equipment Maintenance	100	1,000	1,050	12,500	15,000	26,250	(1,250)
				37,500	55,000	88,250	(4,250)
* Adapted from Table 1, p. 44.

Authorized Report for an Apron Service Resource Pool*

Authorized Report			Output: Equipment Hours
Resource Pool: Apron Services			Planned Quantity: 10,000			Actual Quantity: 9,000

Primary Costs				Authorized	Actual	Variance
Diesel Fuel				36,000	37,000	1,000
Depreciation				25,000	25,000	-

	Quantity Consumption
Secondary Costs	Authorized		Actual
Equipment Maintenance	1,000		1,050	25,000	26,250	1,250
				86,000	88,250	2,250
* Adapted from Table 2, p. 44

RCA also provides a reflective view of operations, i.e., real-time performance measurements. This view allows users to focus on what is going on right now, not just historical data or predictive data. These real-time measurements allow managers to look at the cost and profitability of activities at the time they are taking place.

RCA has very detailed and broad variance analysis capabilities that supports analysis at each planning and control tier. First, it allows for both input side and output side variance analysis by using a debit and credit method. A variance in the input side may be treated as a credit to input and a debit to output (See Tables 4 and 5 below). Second, RCA allows for the classification of controllable versus uncontrollable variances. For example, quantity used is controllable while price may not be controllable. Also the same item may be controllable in one tier but uncontrollable in another tier.

An ACP For an Activity With Actual Costs*

Plan/Actual/ Static Variance Report			Output: # Aircraft Turnarounds
Activity: Prepare Aircraft A7X7			Planned Quantity: 5,000			Actual Quantity: 5,500

Primary Costs				Plan Fixed	Plan Prop	Actual	Variance
N/A				-	-	-	-
	Quantity Consumption
Secondary Costs	Plan Fixed	Plan Prop	Actual
Fuel	-	2,500	2,750	500,000	50,000	605,000	55,000
Water	-	1,000	1,090	100,000	20,000	130,800	10,800
Service	-	1,500	1,650	150,000	75,000	264,000	39,000
Totals				750,000	145,000	999,800	104,800
Activity Planned Cost Rates				150	29

* Adapted from Table 4, p. 47.

Authorized Report and Variance for the Prepare Aircraft Activity*

Authorized Cost Report and Variances			Output: # Aircraft Turnarounds
Activity: Prepare Aircraft A7X7			Planned Quantity: 5,000			Actual Quantity: 5,500
Input Side
Primary Costs				Authorized	Actual	Variance
N/A				-	-	-
	Quantity Consumption
Secondary Costs	Authorized		Actual
Fuel	2,750		2,750	605,000	605,000	-
Water	1,100		1,090	132,000	130,800	(1,200)	Input Quantity
Services	1,650		1,650	247,500	264,000	16,500	Input Price
Totals				984,500	999,800	15,300	Total Var.

Output Side
Cost Recover				984,500	984,500	-
Under Absorption				-	15,300	15,300	Output Price
* Adapted from Table 5, p. 47.

Finally, the authors emphasize the need for learning and an understanding of the system by everyone involved. There must be accountability from everyone in the company based on an accurate determination of responsibility for variances, particularly related to excess or idle capacity. RCA is not only a method of defining and finding variances, but a tool for investigation and corrective action with a focus on control and organizational learning.

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