1 rca discussion: rca modeling basics and the concept of attributability larry r. white, cma, cfm,...

1

RCA Discussion: RCA Modeling Basics and the Concept of Attributability

Larry R. White, CMA, CFM, CPA, CGFM

Executive Director

Resource Consumption Accounting Institute

2

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

3

RCA Recognition

Traditional StandardCosting

Activity Based Costing

4

Direct

Indirect 2

Indirect 1

Product

P&L

RCA Modeling

Traditional Standard Costing

5

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

6

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

8

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

9

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

10

The RCA Modeling Approach

Corporate HeadquartersCorporate Headquarters

Step 1: Model Resources, Capacities, and Consumption Path

11

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

12

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

13

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

14

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

14

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

15

www.RCAInstitute.org

lwhite@rcainstitute.org

757 288 6082

16

IMA Managerial Costing Conceptual Framework Task Force

Managerial Costing Conceptual Framework

Modeling ConceptsQualitative Characteristics

17IMA Managerial Costing Conceptual Framework Task Force

Modeling Concepts

18

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.

19

20

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

21

Example: RCA Multi-Level P&L

23

www.RCAInstitute.org

lwhite@rcainstitute.org

757 288 6082