A study on resource consumption accounting and its present day scenario with a case study

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COST AND MANAGEMENT
ACCOUNTING
Resource Consumption
Accounting
Submitted to-
Prof. Subhrangshu Sekhar Sarkar
Submitted by-
Shuvankar Dey BAM13003
K. Arindam Kumar BAM13016
Prasenjit Mazumder BAM13035
MBA 2nd
Semester
Department of Business Administration
2014

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TABLE OF CONTENTS
1. ABSTRACT................................................................................................3
2. INTRODUCTION.......................................................................................4
3. RESOURCE CONSUMPTION ACCOUTING.........................................5
I. Principles of RCA........................................................................6
II. An example into the principles of RCA......................................7
III. Aspects of RCA...........................................................................10
IV. RCA benefits................................................................................11
V. ERP system..................................................................................12
VI. Differences between rca and traditional cost accounting...........13
VII. Benefits of ERP based RCA model over ABC method.............14
4. CASE STUDY.............................................................................................14
5. CONCLUSION............................................................................................17
6. BIBLIOGRAPHY........................................................................................18

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ABSTRACT
This paper introduces to readers “Resource Consumption Accounting -( RCA)” and its
application. RCA is a comprehensive, fully integrated cost management system focuses
mainly on creating information for an enterprise’s optimization decisions.
RCA breaks down this capacity of resources into productive
capacity resource, non-productive capacity resource and idle capacity resource. RCA follows
the principles of causality, responsiveness and work for modeling resource consumption and
costs.
Resource Consumption Accounting (RCA) is a superior management accounting approach
that provides benefits not achievable through traditional U.S. Management accounting
approaches.

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INTRODUCTION
Background
The role of management accounting is to provide the tools and information for planning,
monitoring and controlling enterprise performance and effective decision support.
Management’s ability to achieve the companies’ strategic objectives during the conversion of
resources into saleable products and services directly depends on the quality of the data
Management Accounting provides. Resource Consumption Accounting (RCA) is a superior
management accounting approach that provides benefits not achievable through traditional
management accounting approaches.
How effectively an organization manages the information they have? In the 1980’s
publication Relevance Lost, Johnson & Kaplan pointed out that U.S. management accounting
did not meet the requirements to operate a company. Not much has changed since according
to a 2003 IMA and Ernst & Young Survey. Some 2,000 CFO's and controllers reported:
80% cost management is important to their organizations’ strategic goals and yet confirmed
that 98% [of their] cost information is distorted citing too many overhead allocations. The
Consortium for Advanced Management International – RCA Interest Group survey
confirmed 80% of U.S. companies still use traditional standard costing, which may account
for only 23% being satisfied with their decision support information.1
Why RCA was developed
The correct calculation and understanding of costs and cost flows are critical for any
Management Accounting system. Resource Consumption Accounting (RCA) is a ‘made in
the U.S.’ management accounting approach, based on GPKa
(Grenzplankostenrechnung), and
Activity-based Costingb
(ABC) approaches. GPK has been used to great effect by
manufacturers and service companies in Europe for several decades. ABC provides
enhanced analytical capabilities and adds the process view of an enterprise’s costs. As stated
in the International Good Practice Guidance published by IFAC PAIB Committee in July
2009,
“A sophisticated approach at the upper levels of the continuum of costing techniques
provides the ability to derive costs directly from operational resource data, or to isolate and
measure unused capacity costs. For example, in the resource consumption accounting
approach, resources and their costs are considered as foundational to robust cost modelling
1
White paper, Resource Consumption Accounting by Anton Van Der Merwe, Partner, Alta Via Consulting, LLC

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and managerial decision support, because an organization’s costs and revenues are all a
function of the resources and the individual capacities that produce them.”2
RESOURCE CONSUMPTION ACCOUTING
Resources Consumption Accounting ( RCA ) is a management accounting approach focusing
on creating reliable information to minimize costs and maximize revenues to enhance the
productive capability of the business, aiming greater success in a highly competitive market.
RCA creates an integrated economic model of operations by breaking down the capacity of
resources into productive capacity resource, non-productive capacity resource and idle
capacity resource. RCA follows the principles of causality, responsiveness and work for
modeling resource consumption and costs.
RCA creates a cost model that supports managers decisions
throughout the organization and aligns them with the organization’s enterprise optimization
strategy. RCA forms the cost model which starts by understanding the organization’s
strategy, it’s competitive position, the resource flows in the organization and their interaction
to support each other to create products or services for sale..
Based in German cost management principles as found in Grenzplankostenrechnung (GPK),
RCA works well with enterprise resource planning (ERP) systems, capturing information at
the lowest levels to accurately determine the costs. It digs down to the resource level—for
instance, costs related to the machine, the date product is manufactured on, the number of
laborers on the line, units of electricity required to run the machine, etc.—to provide high
quality underlying information in the system. Traditional systems typically provide distorted
cost data and just don’t produce the kind of detail available with RCA.When a manager faces
a special decision, such as whether to outsource or to make a product, they should feel
confident that RCA is providing accurate data to support the decision.
Resource Consumption Accounting greatly enhances the ability to leverage technology using
analytical approaches, and reporting mechanisms, to establish alternative perspectives on the
same data.
2
White paper, Resource Consumption Accounting by Anton Van Der Merwe, Partner, Alta Via Consulting, LLC

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PRINCIPLES OF RCA
Causality
The principle of causality is the most important concept covering cause and effect
relationship. Causality requires resource flows and their costs to be modelled from resource
to consumers (support and direct) through the value chain on strict cause and effect basis. It
means the final product and service will not reflect full cost as defined by generally accepted
accounting principles. Full cost requires non-causal allocation of costs to the unit level of a
product or service. The term was established in 1963 by Professor Gordon Shillinglaw.3
Responsiveness
The principle of responsiveness ensures the compliance with the principle of causality in
modelling the resource consumption with main focus on cost behaviour. Responsiveness
governs the fixed and proportional costs relationship between resource pools. The principle
of responsiveness has a number of advantages –
1. Allowing inverse relationship between total cost and total volume when manufacturing
more complex products.
2. Providing managers specific insights into resources when they relate them to changes in
product output.
3. Enabling the accurate modelling of an organization’s economic flow of goods and services
regardless of its complexity.4
Work (or Process) visibility
The principle of work (or process) visibility is adopted from Activity-Based Costing (ABC)
and is applied with quantity based drivers when needed for decision support or process
improvements. Sometimes tracing resource flows between cost objects does not yield
sufficient information for managerial decisions while it is necessary to know what activity is
executed in the resource consumption between resource pools. This principle applies to
3
Application of Resource Consumption Accounting (RCA) in an educational institute, by Syed Ajaz Ahmed
Mehboob Moosa, Department of Accounting and Finance Institute of Business Management, Karachi
4
-do-

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activity modelling by including such activities in the model which add critical and ongoing
information that managers need frequently.5
AN EXAMPLE INTO THE PRINCIPLES OF RESOURCE CONSUMPTION
ACCOUNTING6
We have taken an example of a construction company, “Outdoor Builders” and its endeavour
to develop decks and porches for a project. The following example will highlight on the
importance of the 3 principles and at the same time provide better understanding of the same.
RCA focuses on operational costs and resource consumption. The RCA model uses
many more cost centers than traditional accounting methods. Each cost center’s resources
must be homogenous and must be the responsibility of only one manager. By grouping
resources around a simplified output measure, cost centers are simpler to manage. The
Outdoor Builders example in Table 1 tries to explain that principle of RCA . Under Normal
Costing, Outdoor Builders has two cost centers, Decks and Porches. RCA typically has more
cost centers than Normal Costing, but managers that have implemented RCA prefer this
because they are easier to manage. For instance, it is very difficult to measure the deck or
porch cost center’s performance from job to job because of all the variables that go into each
deck. RCA attempts to break these down into more manageable measurements. At Outdoor
Builders, the Decks cost center is broken down into six different cost centers that have an
easy to measure output. Measuring the performance of the Footings Cost Center based on the
total hours for each footing provides managers more relevant information to make decisions
than the old Decks Cost Center. Additionally, these cost centers can then be aggregated to
summarize any higher level of information. These summaries are easy to obtain at any level,
including the old Deck Cost Center or at the overall company perspective. Similarly, the
performance of the stairs cost center is based upon the no. of steps and the others are
measured upon the required area covered by each items
5
-do-
6
“Resource consumption accounting” by SherleyA.Polejewski,Department of Accounting,University of
St.Thomas

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Table 1 - Outdoor Builders Cost Centers
Normal RCA Measure
Decks Footings
Railings
Framing
Stairs
Support Posts
Decking
# of Footings
Ln. Ft.
Sq. Ft.
# steps
# support posts
Sq. Ft.
Porches Walls
Roofing
…
Sq. Ft.
Roof Sq. Ft.
Normal Costing’s method of explaining relationships are based on monetary values, but
expressing this relationship on a monetary basis causes fixed cost distortions. By using
quantitative relationships based on causality, RCA produces more accurate results as a
predictive model. Diagram 1 shows an example of how the different costing systems view
work in Outdoor Builders.
UsUnder Normal Costing, a value based relationship is established. Normal Costing
lumps all the cost of the cost center together, $100,000 in this case, and then divides by the
driving factor. The end result is $500 cost per footing. This monetary relationship is then
used to compare jobs and cost of upcoming jobs. The problem is, as the later example
explicitly shows, that this monetary value is not causal and can be deceptive when managers
use this information to make decisions.

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Diagram 1 – RCA Quantitative-Based Model
RCA looks at relationships based on cause and effect and applies monetary values
later, not as the leading relationship. Costs that cannot be expressed in causal relationships
are not applied to product costs. Diagram 1 shows how RCA approaches the Footings cost
center. Instead of looking at the monetary value, RCA looks at the cause and effect
relationship between hours and the number of footings. Our example has 1,000 hours for 200
footings, equaling 5 hours per footing. From the RCA perspective, the number of footings is
driving the amount of hours up. These additional hours are what drive the monetary up. By
calculating the 5 hours per footing, we will be able to better predict the cost of future jobs.
Plus, the 5 hours per footing is more helpful information for a manager than the cost of the
footing to manage his/her cost center.
The third important principle in understanding Resource Consumption Accounting is the
nature of costs (Responsiveness). RCA separates costs according to their behaviours into,
while Normal Costing assumes all costs are variable. Table 2 is a good example of how this
principal provides managers with better decision support. The Normal Costing example
pools all the cost center’s costs together and divides by the number of hours. This gives the
cost center a cost rate of $100 per hour. RCA, however, recognizes that these costs are not
going to rise and fall at $100 per hour evenly because there are fixed equipment costs
involved.
Footings Cost
$100,000000
CCoosstt // FFoooottiinngg
$$550000
200 FFoooottiinnggss
Normal
RCA
Footings Hours
1,000 Hours
HHrrss // FFoooottiinngg
55
200 Footings

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RCA separates the costs into both Variable and Fixed Classifications and provides
two hourly rates for managers. This distinction allows us to better see how volume changes
affect our costs. Separating the fixed costs from the variable costs also allows us to highlight
idle capacity, as you can see in Table 3. This is one of the major strengths of RCA. In order
for managers to manage their idle capacity, they must be able to quantify it. RCA explicitly
defines the idle capacity and gives this information to managers to utilize unused resources
and make better decisions.
Table 2 - Cost Behavior
1,000 Hours
Normal RCA
Labor $30,000 Variable Costs
Materials 20,000 Labor $30,000
Equipment 50,000 Materials 20,000
Total Cost 100,000 Variable Rate $50 / Hr
Fixed Costs
Equipment 40,000
Equip. Unused Capacity 10,000
Normal Cost Rate $100/ Hr. Fixed Rate $50/ Hr.
Aspects of RCA7
COMPREHENSIVE VIEW OF RESOURCES
Foundational to RCA is the view of resources. Resources such as equipment, material, and
employees, enable the business activities/processes and other outputs in an enterprise.
Resources serve as the primary source of costs and provide managers with insight into
capacity, utilization and resource efficiency.
7
White paper, Resource Consumption Accounting by Anton Van Der Merwe, Partner, Alta Via Consulting, LLC

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UNAMBIGUOUS VIEW OF COST BEHAVIOR
By correlating required inputs with outputs in the enterprise, RCA is able to provide a
consistent view on consumption and cost behaviour. RCA answers the endless debates about
fixed and variable and their use in decision making. Apart from providing managers with
accurate throughput, contribution and gross margins, RCA also recognizes the need for
‘different costs for different purposes’ and deploys various concepts to clearly delineate
decision support information.
QUANTITY-BASED COST MODEL
RCA expresses causal relationships in quantities versus dollar values. In an RCA cost
model, values follow quantities. Valuation in the cost model occurs only when consumed
quantities are multiplied with output (cost) rates. This quantity-based model of enterprise
operations allows managers to simulate input price changes independently of internal
improvements in efficiency. Therefore, managers can obtain predictive results that combine
project consumption factors and expected input prices.
MULTI-LEVEL MARGINAL P/L VIEW
RCA supports the separation of SG&A from direct and indirect (unit) costs to provide more
transparent profitability reporting. Expenses representing direct (unit) costs for products and
services sold flow into the P/L as Cost of Goods Sold (CoGS). Other indirect costs are
assigned to the product P/L at causal and decision relevant levels, such as Product Linear
Service Line Level, Customer Level or Regional Level. Managers now have the ability to
consider multiple (contribution) margins based on the direct and the different group levels of
indirect costs.
RCA BENEFITS
Management Aspect Benefit
Analysis »
A clear delineation of costs affected by decisions at different levels within management
Decision Support »
Maintaining the integrity of cost behavior through consumption relationships enhances
analysis and decision support
Corrective Action »
Improved through accurate predictive results, more timely information, authorized/flexed
budgets and extensive variance analysis

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Organizational Control »
More effective through seamless integration of predictive and actual results
Performance Measurement »
Providing valid benchmarks of actual performance by associating required inputs with the
actual outputs produced
WHAT IF YOU ALREADY HAVE AN ERP SYSTEM?
Effective Management Accounting systems require consistent data for operational, tactical,
and strategic information. ERP systems were designed with this aspect in mind. Moreover,
ERP packages already provide RCA functionality, notably SAP. Users of these systems incur
no incremental IT investment to obtain superior management information. A comprehensive
RCA implementation can be accomplished in a number of ways:
– implement RCA across the enterprise
-out approach – implement RCA in one area first with subsequent roll-outs to the rest
of the organization
– develop an RCA proof-of concept before implementing it on
the operational system
-in approach – implement those RCA principles which provides the most benefit as a
first iteration and improve level of detail and granularity over time
A key benefit for implementing RCA is it unleashes the power of the ERP system
already in place. ERP systems have been very effective in providing more data, but not
necessarily better data. What management needs is relevant information structured to enable
them to achieve enterprise objectives.
Moreover, in the resource consumption method the principle of responsiveness is replaced
with the principle of variability for the operational modeling.

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DIFFERENCES BETWEEN RCA AND TRADITIONAL COST
ACCOUNTING
RCA TRADITIONAL METHOD
1) RCA attributes the cost
of excess or idle capacity to the person or
to the
level responsible for influencing the
resources but doesn’t allocate it to the
products.
Excess or idle capacity is not identified and
thus cannot be associated with the
appropriate persons or levels and is routinely
allocated to the products.
2) RCA facilitates
capacity analysis by making the use of
theoretical volume for cost rates and also
making excess or idle capacity visible to
managers.
This method confuses capacity analysis by
using master-budget volume for cost rates
and not accounting for excess or idle
capacity.
3) RCA uses replacement
cost depreciation method to provide useful
internal cost decision support information.
This method uses depreciation method
prescribed by the external reporting system
that often does not reflect economic reality.
4) Resource Consumption
Acconting pulls cost of resources consumed
to cost objects by using non dollar,
Quantified output-consumption relationships
based on causality.
Pushes cost of resources supplied to cost
objects by spreading all costs incurred over
finished goods units produced.
5) Identifies and assigns costs as
innately fixed or variable (proportional) at
the resource level, accurately specifying the
nature of costs.
Identifies and assigns costs as innately fixed
or variable at the product level, obscuring
true cost consumption patterns.
6) RCA recognizes that
indigenous proportional costs can be
consumed in a fixed manner and provides
required treatment.
Provides no recognition of cost consumption
patterns at the resource level.
7) Provides decision makers
the ability to track and group cost
information at virtually any level—from the
Groups costs at a department or product level
with little or no provision for tracking or
accessing costs at lower levels.

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resource level to the organization level.
8) RCA also facilitates
operations management with quantified
actual nonfinancial information to compare
to
planned or standard quantities.
Nonfinancial information is often sparse or
unavailable since costs are frequently
allocated based on percentage relationships
without tracking resource quantity
consumption
BENEFITS OF AN ERP-BASED, RCA APPROACH OVER ACTIVITY-
BASED METHODS (ABM) INCLUDE:
1. The RCA model automates gathering, and building the relationship, of actual financial and
operational data into comprehensive, applied business model. The relationships between
resources, cost drivers and cost objects are automatically updated in the course of work. In
contrast, the ABC model relationships are often discerned through subjective interviews and
other time-study snapshots.
2. RCA provides a forward-looking business model. This is in contrast to the activity-based
system, which is generally backward looking using historical information without recognition
of current and future business changes.
3. RCA focuses on managing resource capacity as the basis for managing attributable costs,
with costs driven by quantities of capacity demanded. ABC, using full absorption approach,
drives all supplied cost through the business, regardless of the actual quantity of resource
demanded by service receiver.
4. RCA recognizes resource interdependencies between the cost centers themselves and
retains the transparency of the individual cost elements that make up the cost centre pool.
ABC models are of a step-down nature, ( from resource to activity to cost object ) without
recognizing fully burdened resource costs.
CASE STUDY8
CLOPAY PLASTICS COMPANY
Headquartered in Cincinnati, Ohio, Clopay has U.S. film manufacturing operations in
Augusta, Ky., and Nashville, Tenn., as well as others in Germany and Brazil. The company
manufactures plastic products, such as film, that are sold to consumer product companies for
use in hygiene and healthcare products. In addition to providing innovation in the plastic film
8
“RCA at Clopay” by B.Douglas Clinton & Sally A. Webber ,Department of Accountancy ,Northern Illinios
University.

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industry, Beyond the manufacturing area, there are five departments that support the Augusta
operations, including shipping, materials management, quality assurance, plant maintenance,
and administration. Before the RCA pilot, the Augusta Clopay plant used a traditional
standard costing system and generally based their standard product costs on planned machine
hours and sales in pounds. They allocated support department costs to the production
departments using the direct method based on various allocation bases including machine
hours, pounds produced, purchased pounds, and headcount in each production department.
These costs consisted of indirect labour, support labour, office supplies, and other
depreciation. Production departments then added their own overhead costs to the fully
absorbed support costs in creating a standard cost for overhead.
PROBLEMS WITH CLOPAY’S PREEXISTING PRODUCT COSTING METHOD
Clopay’s pre-existing costing system was a classic example of a full-absorption method
creating the potential for fixed-cost death spiral effects.
 The primary issue was that costs for individual products changed based on unrelated
changes to other products or resource costs associated with other products
 The second was costing issue related to assigning depreciation costs based on
financial accounting. Where two machines differ in terms of age and cost, the pre-
existing Clopay system allocates higher costs to products made on the new machine,
even though the products made on the old machine could be very similar.
 Third, cost assignment affects customer and market issues as well. When product
managers realized Clopay was going to eliminate or phase out a product , they
lowered the selling price on alternate products or increased the volume of low-priced
commodity products to increase volume for the remaining products. Given an
expected decline in volume, managers knew those overhead cost dollars would be
spread over a decreasing number of units and, in turn, would cause the cost per unit to
increase, making the profit per unit decline.
Clopay management recognized that they were relying on inaccurate cost information
and intuition that unfortunately provided a poor substitute for strategic cost information.
Moreover, the current system couldn’t simulate cost results given changes in resources such
as an additional machine or upgrading an existing one. As a result, Clopay agreed to serve as
an RCA case study to investigate the differences between RCA and its current system.

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Clopay used RCA to create 23 resource pools for costs in two categories: general support and
production departments. Using 23 resource pools as opposed to eight support and six
production departments offered the opportunity to better trace costs by type into resource
pools. More resource pools provided more detailed information, which made for more
accurate data to use when making strategic decisions. This approach provided greater
homogeneity than Clopay could achieve by using departments that contained a diversity of
costs. RCA assigns costs based on causality but doesn’t insist on using activity drivers for
cost assignment where such drivers are either unnecessary to achieve accuracy or aren’t
desired for some other purpose, such as achieving a greater understanding of processes or
how to manage them. RCA excluded fixed costs that couldn’t be traced based on causality—
the largest of these costs were due to idle capacity, which resulted in a total of 6% fewer
conversion costs assigned by RCA than with the pre-existing Clopay cost system. Clopay
implemented additional RCA features by using replacement cost depreciation for product-
costing purposes and theoretical capacity for denominator volume
RCA BENEFITS CLOPAY REALIZED
◆Properly attributing costs to specific production processes and their outputs resulted in
more accurate cost assignment and a better understanding of resource consumption patterns.
◆The achievement of more accurate cost assignment provided the ability to conduct resource
planning using only relevant costs.
◆The use of replacement cost depreciation eliminated the issue of unequal cost assignment
for similar products that consumed the same resources and support activities.
◆Product costs included only the cost of resources used.
◆The amount of excess/idle capacity was made available to managers based on unconsumed
theoretical capacity.
◆Cost assignment based only on causality eliminated costs that were previously assigned
based on unrelated changes to other products.
◆Incentive to non strategically lower selling prices to artificially manipulate cost allocation
amounts to specific products was eliminated.

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◆Properly identifying resource consumption based on the innate nature of particular costs
enhanced managers’ ability to understand resource interrelationships and use the underlying
information to support incremental decision making quickly.
CONCLUSION
RCA is a very emerging and productive cost accounting method which is well suited for
today’s contemporary and complex business activities. As with any new system, there are
some drawbacks to RCA. RCA is expensive to implement. There is significant planning
time required, and an integrated ERP system must be implemented as well. This will prove
to be difficult because RCA is very new and very few companies around the world have
implemented these methods. Also, RCA may not be a good fit for companies with non-
routine activities. Causal relationships will be hard to define for non-routine activities.
Overall, Resource Consumption Accounting is emerging cost management methods
that may help managers make better decisions. By separating cost behaviours, RCA
highlights idle capacity and reduces fixed cost distortions. These features are critical to help
solve the pandemic of inadequate management accounting systems. Thus, it is hoped that
with further research and development to eradicate the shortcomings in this useful accounting
based system, we can see high prospects of the implementation of the RCA in various diverse
businesses in the future.

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BIBLIOGRAPHY
 Webber, Sally and Douglas Clinton. “Resource Consumption Accounting Applied: The Clopay
Case” Management Accounting Quarterly. 2004, Fall. Vol. 6, No. 1. 1-14.
 Sharman, Paul A. “Bring on German Cost Accounting” Strategic Finance. 2003, December.
1-9.
 Friedl, Gunther and Hans-Ulrich Kupper. “Relevance Added: ABC with German Cost
Accounting” Strategic Finance. 2005, June. 56-61.
 Keys, David E. and Anton Van Der Merwe. “Gaining Effective Organizational Control with
RCA” Strategic Finance. 2002, May. 1-7.
 Merwe, Anton Van Der and David E. Keys. “The Case For Resource Consumption
Accounting” Strategic Finance. 2002, April. 1-6.

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APPENDIX
APPENDIX A
Activity Based Costing
Activity-based costing (ABC) is a costing methodology that identifies activities in an
organization and assigns the cost of each activity with resources to all products and services
according to the actual consumption by each. This model assigns more indirect
costs (overhead) into direct costs compared to conventional costing.
CIMA (Chartered Institute of Management Accountants) defines ABC as an approach to
the costing and monitoring of activities which involves tracing resource consumption and
costing final outputs. Resources are assigned to activities, and activities to cost objects based
on consumption estimates. The latter utilize cost drivers to attach activity costs to outputs.
ABC is based on George Staubus' Activity Costing and Input-Output Accounting. The
concepts of ABC were developed in the manufacturing sector of the United States during the
1970s and 1980s. During this time, the Consortium for Advanced Management-International,
now known simply as CAM-I, provided a formative role for studying and formalizing the
principles that have become more formally known as Activity-Based Costing.
Methodology of ABC focuses on cost allocation in operational management. ABC helps to
segregate
 Fixed cost

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 Variable cost
 Overhead cost
The split of cost helps to identify cost drivers, if achieved. Direct labour and materials are
relatively easy to trace directly to products, but it is more difficult to directly allocate indirect
costs to products. Where products use common resources differently, some sort of weighting
is needed in the cost allocation process. The cost driver is a factor that creates or drives the
cost of the activity.
Steps to implement Activity-Based costing
1. Identify and assess ABC needs - Determine viability of ABC method within an
organization.
2. Training requirements - Basic training for all employees and workshop sessions for
senior managers.
3. Define the project scope - Evaluate mission and objectives for the project.
4. Identify activities and drivers - Determine what drives what activity.
5. Create a cost and operational flow diagram – How resources and activities are related
to products and services.
6. Collect data – Collecting data where the diagram shows operational relationship.
7. Build a software model, validate and reconcile.
8. Interpret results and prepare management reports.
9. Integrate data collection and reporting.
APPENDIX B
Grenzplankostenrechnung (GPK) is a German costing methodology, developed in the late
1940s and 1950s, designed to provide a consistent and accurate application of how
managerial costs are calculated and assigned to a product or service. The term
Grenzplankostenrechnung, often referred to as GPK, has been translated as either Marginal
Planned Cost Accounting or Flexible Analytic Cost Planning and Accounting.
The GPK methodology has become the standard for cost accounting in Germany as a "result
of the modern, strong controlling culture in German corporations". German firms that use
GPK methodology include Deutsche Telekom, Daimler AG, Porsche AG, Deutsche Bank,
and Deutsche Post (German Post Office). These companies have integrated their costing

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information systems based on ERP (Enterprise Resource Planning) software (e.g., SAP) and
they tend to reside in industries with highly complex processes.[4] However, GPK is not
exclusive to highly complex organizations; GPK is also applied to less complex businesses.
GPK's objective is to provide meaningful insight and analysis of accounting information that
benefits internal users, such as controllers, project managers, plant managers, versus other
traditional costing systems that primarily focus on analyzing the firm's profitability from an
external reporting perspective complying with financial standards (i.e., IFRS/FASB), and/or
regulatory bodies' demands such as the Securities and Exchange Commission(SEC) or
the Internal Revenue Services (IRS) taxation agency. Thus, the GPK marginal system unites
and addresses the needs of both financial and managerial accounting functionality and costing
requirements.
Resource Consumption Accounting (RCA) is based, among others, on key principles of
German managerial accounting that are found in GPK.