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...........13VII. 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.

PRINCIPLES OF RCA2 White paper, Resource Consumption Accounting by Anton Van Der Merwe, Partner, Alta Via Consulting, LLC

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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

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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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Footings Cost$100,000

Cost / Footing$500200 Footings

Normal

RCA

Footings Hours1,000 Hours Hrs / Footing

5200 Footings

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.

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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:

Big Bang approach – implement RCA across the enterprise

Roll-out approach – implement RCA in one area first with subsequent roll-outs to the rest

of the organization

Parallel (shadow) approach – develop an RCA proof-of concept before implementing it on

the operational system

Phase-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 STUDY 8

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

industry, Beyond the manufacturing area, there are five departments that support the Augusta 8 “RCA at Clopay” by B.Douglas Clinton & Sally A. Webber ,Department of Accountancy ,Northern Illinios University.

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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.

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