Management And Accounting Web

Questions Related to RCA and German Cost Accounting

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

German Accounting Main Page | Graduate MA Course

Team 1: Jennifer Beck, Kevin Elliott

1. What role do responsibility centers play in GPK, ABC, and RCA? (link to Gaiser)

They measure efficiency, and are used for planning and control.

2. What is the fundamental difference between ABC and RCA?

RCA deals more accurately with fixed costs. ABC views all costs as variable, but RCA recognizes the portions that are fixed.

3. In what type of industry would RCA be superior to ABC. Give examples.

An industry with significant fixed costs (high capital investment) and diversity of products. Examples: hospitality, entertainment, education.

4. What types of costs are included in RCA that make it more effective than ABC?

Excess capacity, wasted resources

5. What are the problems with the CAM-I cross?

It ignores the different levels of management and the various tiers within those levels.

Team 2: Renauri Castro and Denisse Reguerin

1. How is RCA Different from ABC?

ABC has a narrow focus on the value chain and doesn’t adequately consider the varying information and performance measurement needs for the different levels of management.

RCA reflects the different information and performance measurement needs.

2. How is authorized cost different than budgeted costs?

Authorized costs take into account fluctuations and all factors that influence cost behavior.

3. What is meant by the term ‘Reflective View’?

Real time measurements that allow managers to look at the cost and profitability of activities at the time they are taking place as opposed to using historical data or forecasted data.

4. Why does RCA use the debit and credit method for variance analysis?

The debit and credit method allows for input/output accounting where an output variance leads to an input variance in another activity.

Team 3 Anamaris Gonzalez, Velynda Wickerson and Adrienne Perez

1. How does Resource consumption Accounting differ from Activity Based Costing?

RCA does not include excess or idle capacity while ABC tends to include everything in the computations.

2. What does the results of RCA exhibit?

It shows management the resources necessary to produce the product while achieving the desired level or sales or profit.

3. How does RCA measure resource output? How is that beneficial?

RCA measures resource outputs in quantifiable units rather than dollars. This allows management to directly assign the resource cost with resource quantities. RCA allows management to define the relationship between resource cost and qualities. After that relationship has been established, management can then assign dollar value to the resources.

4. How does the allocation method of German Accounting (GPK) differ from the allocation method used in RCA? Which is a better approach?

GPK designers begin their costing system by defining standards for cost. RCA begins with a desired amount of sales and works towards the resources needed to achieve this goal. GPK yields higher costs because all costs are accounted for. Resource consumption accounting only focuses on the cost used during production. GPK will have higher prices because of their method of assigning cost. Capacity is also an issue. GPK encompassed their capacity in cost. There is no way to show that they are being inefficient because all costs are incorporated into the costing system. RCA facilitates capacity analysis by only taking into account the resource cost used. Efficiency is much more visible when using RCA.

5. Which is the best approach? When a company has product diversity, resource consumption accounting is better. GPK is most effective when the outputs and inputs are constant. Because it is so costly to change the system, companies using GPK miss out on market demand.

Team 4 Christin Howells, Christina Thayer and Alberto Gonzalez

1. How does German target costing differ from that of Japanese target costing? (What types of costs are included.)

Japanese target costing encompasses only direct production costs while German target costing incorporates activity based costing in addition to direct production costs. These costs are then determined based on the target costing philosophy: determine the product cost, determine an acceptable profit margin and calculate an acceptable production cost based on these figures.

2. What type of business would benefit the most from the application of German target costing methods? Why?

Since it is difficult to appropriately assign numerous indirect costs to a product, German target costing is best applied in those companies whose products consume few indirect production costs. Therefore, it has proved most beneficial in manufacturing companies in Germany as such costing methods help to lower production costs as well as focus on market demand.

Team 5: Lee Salemi and Adebola Shokunbi

1. How does the approach to cost drivers in German Cost Management Systems compare to the use of Practical Capacity measures in determining fixed overhead rates?

In essence, these two approaches accomplish the same results. In German CMS, resource cost drivers are a functional tool for resource and capacity management, allowing managers to make decisions to outsource resources, determine other means of acquiring and using resources, and measuring the cost of excess/idle capacity.

Along the same lines, the practical capacity approach provides fixed overhead rates, excluding the cost of unused resources from product costs and in turn, aiding management in making the right decisions concerning product introductions, product discontinuations, and outsourcing.


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

Debruine, M. and P. R. Sopariwala. 1994. The use of practical capacity for better management decisions. Journal of Cost Management (Spring): 25-31.

2. How is the German CMS more efficient than the system of traditional costing in regards to assigning costs to the correct year?

Traditional costing uses historical costs which can lead to useless information for cost management. Also, it may cause manipulation of financial information in order to make the financial reports look better. In contrast, German CMS assigns costs to the correct year so that management will have more valuable information.


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

3. What critical factor does GPK take into consideration in evaluating a cost center’s efficiency?

In order to evaluate a cost center’s efficiency, GPK takes the usage variance into account. This variance is defined as the difference between actual costs and standard costs for the center. The use of the usage variance, as well as others pertaining to volume and price, generates reports that management relies on in order to assess productivity and ways of improving it.


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

4. How can statistical tools be incorporated into German process costing (Prozesskostenrechnung)?

German process costing, which integrates concepts of ABC into German control systems, makes a distinction between processes and sub processes. Cost management pays more attention to main processes in order to plan and monitor improvement in productivity. In this manner, statistical tools such as Pareto Charts, Fishbone Diagrams, Histograms, Line Charts, and many others, can help analyze the entire system and help identify the significant improvements that can be made in the system.


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

Chapter 8. Just-in-Time, Theory of Constraints and Activity Based Management Concepts and Techniques.

5. German companies have lost market share as a result of a failure to meet the needs and desires of customers. How can the understanding of conformance quality and design quality help resolve this problem?

Design quality refers more to the “bells and whistles,” while conformance quality is where the product or service meets engineering specifications and customer expectations. Inexpensive products may be high quality products in terms of conformance and expensive products are low quality if they do not meet these conformance expectations. With this knowledge, German companies can realize that their tradition of maintaining a focus on technology and design quality, fails to meet the customers’ expectations of affordable prices.


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

Atkinson, A. A., R. D. Banker, R. S. Kaplan and S. M. Young. 2001. Management Accounting 3rd edition. Upper Saddle River : NJ: Prentice Hall. Chapter 2 Summary, item 4.

Team 6: Jae Johnson and Charlie Nowlin

1. What types of problems can RCA help with?

The presence of unplanned wasted resources, overcharges for idle capacity, distorted product decisions, shortage of resources, undercosting of resources, inadequate information for outsourcing decisions, and lack of information for evaluations of performance.

2. What terms are used to define capacity in RCA?

Theoretical and practical volume, and idle or excess capacity becomes visible and is not charged to products.

3. What is authorized reporting?

Budgeted variable costs are flexed to reflect actual quantities of products produced.

4. What is the difference between authorized costing and flexible budgeting?