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RCA Discussion: RCA Modeling Basics and the Concept of Attributability
Larry R. White, CMA, CFM, CPA, CGFM
Executive Director
Resource Consumption Accounting Institute
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Resource Consumption Accounting
• RCA Inherits Core Principles from German Cost Management (GPK)– Well Developed Standard Costing System
– Practiced since the Late 1940’s
– Principles used in 3,000+ Companies
• RCA Integrates– Activity-based Costing and Throughput Concepts
• RCA Creates an Integrated Economic Model of Operations for Decision Making– Enterprise Optimization
– Internal Manager focused
– Principle Based
– Superior Marginal Analytics
RCARCA
Resource view
Advantages
Process view
Advantages
GPK ABC
Capacity Analysis
and Management
Process Analysis and Management
Capacity-Focused
Activity-Focused
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RCA Recognition
Traditional StandardCosting
Activity Based Costing
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Direct
Indirect 2
Indirect 1
Product
P&L
RCA Modeling
Traditional Standard Costing
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Direct
Indirect 2
Indirect 1
Product
P&L
Standard Costing
Direct
Indirect 2
Indirect 1
Product
P&L
Activity 1 Activity 2
RCA Modeling
Activity BasedCosting
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Direct
Indirect 2
Indirect 1
Product
P&L
Standard Costing
Direct
Indirect 2
Indirect 1
Product
P&L
Activity 1 Activity 2
ABC
Product
P&L
Activity 1
Indirect 1
Indirect 2
Direct
Non-causal Costs
RCA Modeling
RCA
RCA Storyboard
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RCA Storyboard
Product Support Cost
S: Ancillary Production Equipment
S: AdministrationHuman Resources
& Accounting
S: Quality Assurance
RP: Dryer (Hours)Capacity: 100Output Qty: 100
S: Plant Engineering and
Maintenance
RP: Plant Maintenance (Maint. Labor)Capacity: 30,000Output Qty: 30,000
P: Extrusion Line
RP: Extrusion Labor (Labor hours)Capacity; 32,000Output Qty: 30,000
Product P & L’s
Department
Resource PoolAbbreviated RP
Activity
RP: Chiller (Hours)Capacity: 50,000Output Qty: 50,000
Perform Accting
Perform Admin
QATesting
Legend
S-Support
P- Production
Noncausal Costs
ProductReturns
RP: Extrusion Machine1(Machine hours)Capacity; 17,520Output Qty: 10,000
Manufacturing Costs
Budgeted Products
RP: QA Labor(Labor hours)Capacity: 14,000Output Qty: 14,000
RP: Admin Labor(Labor hours)Capacity: 17,000Output Qty: 17,000
Perform HR
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Plant Maintenance Resource Pool Output Measure: Maintenance Labor HourOutput Quantity: 20,000 Hours
Primary Costs Fixed Proportional
Technician Wages -$ 600,000$
Supervisor Salary 80,000$ -$
General Material 12,000$ 100,000$
Depreciation: Shop Equipment 50,000$ -$
142,000$ 700,000$
Secondary Costs
Resource Pool Output Fixed Qty Prop Qty
Utilities MW-Hrs 40 160 6,000$ 24,000$
Activity/Process Driver Fixed Qty Prop Qty
HR: Benefits Adjustments # Adjusts 22 0 1,100$ -$ Purchase: Gen Materials # PO's 10 200 500$ 10,000$
7,600$ 34,000$
Total Resource Pool Costs 149,600$ 734,000$
Unit Cost Rates (/20,000 Hrs) 7.48 36.70
RCA Information
1. Model the resources, their capacity, and where they are consumed
2. Model the quantities of resources consumed, and the nature of that consumption
• Nature = Fixed or Proportional
3. Model the costs that flow with the quantities and the nature of the consumption
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The RCA Modeling Approach
Corporate HeadquartersCorporate Headquarters
Step 1: Model Resources, Capacities, and Consumption Path
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Plant Labor
Direct Materials
Capacity240 Hrs
Capacity240 Hrs
CapacityUnlimited
Finished Product
Training
HQ Reporting
Idle Plant & Maintenance Labor
Plant Maintenance
Corporate HeadquartersCorporate Headquarters
Step 2: Model Consumption Rates and Nature
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Plant Labor
Direct Materials
Capacity240 Hrs
Capacity240 Hrs
CapacityUnlimited
Finished Product
Training
HQ Reporting
1 lbs. per unit1 lbs. per unit
4 hrs. per unit4 hrs. per unit
2 hrs. per unit2 hrs. per unit
80 hrs. per month
80 hrs. per month
80 hrs. per Month
80 hrs. per Month
30 hrs. per month
30 hrs. per month
80 hrs. per month
80 hrs. per month
Idle Plant & Maintenance Labor
Plant Maintenance
Calculated based on
production
Calculated based on
production
ProportionalProportional
FixedFixed
Corporate HeadquartersCorporate Headquarters
Step 3 Add Costs and Flow with Resource Quantities
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Plant Labor
Direct Materials
Capacity240 Hrs
Capacity240 Hrs
CapacityUnlimited
Finished Product
Training
HQ Reporting
1 lbs. per unit1 lbs. per unit
4 hrs. per unit4 hrs. per unit
2 hrs. per unit2 hrs. per unit
80 hrs. per month
80 hrs. per month
80 hrs. per Month
80 hrs. per Month
30 hrs. per month
30 hrs. per month
80 hrs. per month
80 hrs. per month
Idle Plant & Maintenance Labor
Plant Maintenance
Calculated based on
production
Calculated based on
production
MaterialsMaterials
Proportional CostProportional Cost
Fixed CostFixed Cost
xxxx
xxxx
xxxx
Idle LaborIdle Labor
Fixed-TrainingFixed-Training
xxxx
xxxx
Fixed–HQ ReportingFixed–HQ Reporting xxxx
$300$1.25 per hr
$200$0.83 per hr
$10 per unit
ProportionalProportional
FixedFixed
Corporate HeadquartersCorporate Headquarters
MANAGERIAL ACCOUNTING – MULTI-LEVEL P&L
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Plant Labor
Direct Materials
Capacity240 Hrs
Capacity240 Hrs
CapacityUnlimited 1 lbs. per unit1 lbs. per unit
4 hrs. per unit4 hrs. per unit
2 hrs. per unit2 hrs. per unit
80 hrs. per month
80 hrs. per month
80 hrs. per Month
80 hrs. per Month
30 hrs. per month
30 hrs. per month
80 hrs. per month
80 hrs. per month
Plant Maintenance
Calculated based on
production
Calculated based on
production
$300$1.25
per unit
$200$0.83
per unit
$10 per unit
Proportional Cost
Proportional Cost
Fixed CostFixed Cost
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Corporate P&L
Plant P&L
Product P&L
MaterialsMaterials
Proportional CostProportional Cost
Fixed CostFixed Cost
xxxx
xxxx
xxxx
Idle LaborIdle Labor
Fixed - TrainingFixed - Training
xxxx
xxxx
Fixed HQ ReportingFixed HQ Reporting xxxx
RevenueRevenue xxxx
Product MarginProduct Margin xxxx
Plant MarginPlant Margin xxxx
Corporate MarginCorporate Margin xxxx
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IMA Managerial Costing Conceptual Framework Task Force
Managerial Costing Conceptual Framework
Modeling ConceptsQualitative Characteristics
17IMA Managerial Costing Conceptual Framework Task Force
Modeling Concepts
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Causal Relationships
• Strong Form - Consumption relationship can be quantified.– Fixed and Proportional relationship
• Weak Form – Consumption relationship exists, but cannot be quantified– Generally Fixed relationship– Examples: Excess Capacity, Multi-product brand
marketing, Multi-product division management– Concept of Attributability applies
Concept of Attributability
• Attributability: The responsiveness of inputs to decisions that change the provision and/or consumption of resources.– Not all resources have strong cause and effect relationships with a
managerial objective.– Costs with a weak causal relationship to a managerial objective are
often relevant costs in decision making. – The costs associated with a resource with a weak causal
relationship to an output can distort decision support information if not modeled and used appropriately.
– Attributable Cost: Costs associated with an output that could be eliminated if that output were discontinued and resources were reduced accordingly.
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RCA Structure for Marginal CostingRCA Structure
Quantitative
Definition of Material Causal Relationships
Support/Secondary Resource Pools
Support/Secondary Activities
Primary Resource Pools
Primary Activities
Product/Service Objects
Result Segments
WeakCausal
Relationship
Results Segments
• Product/Service– Product Group– Product Family/Line– Company
• Facility
• Distribution Channel
• Customer
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Example: RCA Multi-Level P&L
