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RCA Discussion:

Marginal Costing and RCA

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)

– GPK is a Well Developed Standard Costing

System

– Principles Applied in Practice since the Late

1940’s

– Implemented by 3,000+ Companies

• RCA Creates an Integrated Economic

Model of Operations for Decision Making

– Enterprise Optimization

– Principle Based

– Superior Marginal Analytics

RCA

Resource view

Advantages

Process view

Advantages

GPK ABC

Capacity

Analysis and

Management

Process

Analysis and

Management

Capacity-

Focused

Activity-

Focused

What is Marginal Costing?

• Wikipedia: – Marginal Cost is the change in total cost that arises

when the quantity produced changes by one unit.

– Marginal Costing (under Cost Accounting): This

method is used particularly for short-term decision-

making. Its principal tenets are: – Revenue (per product) - variable costs (per product) = contribution

(per product)

– Total contribution - total fixed costs = total profit or total loss)

• Thus, it does not attempt to allocate fixed costs in an arbitrary

manner to different products.

A Closer Look

• What resource use (and costs) will change if

output changes?

• What you need to know: – Relationships within a process: What resources in the

value chain contribute to creating the output?

– Characteristics of the resources used:

• Which resources will need beefed up or reduced?

• What resource quantities have fixed and proportional

relationships with the change in output?

– Costs associated with the resource changes.

Consumption Concepts

Operational

Fixed Variable

Decision Support

Unavoidable Avoidable

Opportunity Cost

“Relevant Range”

Can be Modeled Basis for Action

Divisibility of Resource Information

Variability

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Machine A Machine B

Responsiveness

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Machine A Machine B

Responsiveness

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Product 1

Product 2

Product 3

Machine 1 Machine 2 Packaging

Supervisor

Labor

Supplies

Depreciation F

F

P&F

P&F

Supervisor

Labor

Supplies

Depreciation F

F

P&F

P&F

Supervisor

Labor

Supplies

Depreciation F

F

P&F

P&F

Electricity Floor Space

P F

0.2 0.2 0.2 0.1 0.3 0.4

0.1

0.1

0.2

Fixed Rate per Machine Hr Proportional Rate per Machine Hr

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Plant Maintenance Resource Pool Output Measure: Maintenance Labor Hour

Output 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

RCA Storyboard RCA Model Storyboard

Examples of RCA Information

Examples of RCA Information Copyright 2011 MESA North American

Conference

Examples of RCA Information Copyright 2011 MESA North American

Conference

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www.RCAInstitute.org

lwhite@rcainstitute.org

757 288 6082