Summary by Renauri Castro
Master of Accountancy Program
University of South Florida, Fall 2004
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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.
The RCA Control System
RCA has four control mechanisms including:
Management planning and control tiers,
Authorized reporting,
A reflective view of operations, and
Extensive variance analysis.
Management Planning and Control Tiers
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.
Authorized Reporting
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.
| Table 1: Planned Output and Unit Standards to be Used for Authorized Reporting | ||||||||
|
Plan/Actual/ Static Variance Report Resource Pool: Apron Services |
Output: Equipment Hours Planned Quantity: 10,000 |
Actual Quantity: 9,000 | ||||||
| Primary Costs | Plan Fixed | Plan Prop | Actual | Variance | ||||
| Diesel Fuel | $0 | $40,000 | $37,000 | ($3,000) | ||||
| Depreciation | 25,000 | 0 | 25,000 | 0 | ||||
| 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) | |||||
| Table 2: Authorized Report for an Apron Service Resource Pool | |||||
| Authorized Report Resource Pool: Apron Services | Output: Equipment Hours 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 | 0 | ||
| Quantity Consumption | |||||
| Secondary Costs | Authorized | Actual | |||
| Equipment Maintenance | 1,000 | 1,050 | 25,000 | 26,250 | 1,250 |
| $86,000 | $88,250 | $2,250 | |||
A Reflective View of Operations
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.
Extensive Variance Analysis
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.
| Table 4: An ACP For an Activity With Actual Costs | |||||||
| Plan/Actual/ Static Variance Report Activity: Prepare Aircraft A7X7 |
Driver: # Aircraft Turnarounds Planned Quantity: 5,000 |
Actual Quantity: 5,500 | |||||
| Primary Costs | Plan Fixed | Plan Prop | Actual | Variance | |||
| N/A | $0 | $0 | $0 | $0 | |||
| Quantity Consumption | |||||||
| Secondary Costs | Plan Fixed | Plan Prop | Actual | ||||
| Fuel | 0 | 2,500 | 2,750 | 500,000 | 50,000 | 605,000 | 55,000 |
| Water | 0 | 1,000 | 1,090 | 100,000 | 20,000 | 130,800 | 10,800 |
| Service | 0 | 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 | |||||
| Table 5: Authorized Report and Variance for the Prepare Aircraft Activity | ||||||
|
Authorized Cost Report and Variances Activity: Prepare Aircraft A7X7 |
Output: # Aircraft Turnarounds Planned Quantity: 5,000 |
Actual Quantity: 5,500 | ||||
| Input Side Primary Costs |
Authorized | Actual | Variance | Category | ||
| N/A | $0 | $0 | $0 | - | ||
| Quantity Consumption | ||||||
| Secondary Costs | Authorized | Actual | ||||
| Fuel | 2,750 | 2,750 | 605,000 | 605,000 | 0 | - |
| Water | 1,100 | 1,090 | 132,000 | 130,800 | (1,200) | Input Quantity |
| Service | 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 | 0 | - | ||
| Under Absorption | 0 | 15,300 | 15,300 | Output Price | ||
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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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).
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).
