1. 1 RCA Discussion: RCA Modeling Basics Larry R. White, CMA, CFM, CPA, CGFM Executive Director Resource Consumption Accounting Institute

2. 2 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 –Principles Implemented by 3,000+ Companies RCA Integrates –Activity-based Costing and Throughput Concepts 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

3. 3 Direct Indirect 2 Indirect 1 Product P&L RCA Modeling Traditional Standard Costing

4. 4 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 Based Costing

5. 5 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

6. 6 RCA Storyboard Product Support Cost S: Ancillary Production Equipment S: Administration Human Resources & Accounting S: Quality Assurance RP: Dryer (Hours) Capacity: 100 Output Qty: 100 S: Plant Engineering and Maintenance RP: Plant Maintenance (Maint. Labor) Capacity: 30,000 Output Qty: 30,000 P: Extrusion Line RP: Extrusion Labor (Labor hours) Capacity; 32,000 Output Qty: 30,000 Product P & L’s Department Resource Pool Abbreviated RP Activity RP: Chiller (Hours) Capacity: 50,000 Output Qty: 50,000 Perform Accting Perform Admin QA Testing Legend S-Support P- Production Noncausal Costs Product Returns RP: Extrusion Machine1 (Machine hours) Capacity; 17,520 Output Qty: 10,000 Manufacturing Costs Budgeted Products RP: QA Labor (Labor hours) Capacity: 14,000 Output Qty: 14,000 RP: Admin Labor (Labor hours) Capacity: 17,000 Output Qty: 17,000 Perform HR

7. 7 RCA Information

8. 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 8 The RCA Modeling Approach

9. Corporate Headquarters Step 1 : RESOURCE CONSUMPTION ACCOUNTING MODEL 9 Plant Labor Direct Materials Capacity 240 Hrs Capacity 240 Hrs Capacity Unlimited Finished Product Training HQ Reporting Idle Plant & Maintenance Labor Plant Maintenance

10. Corporate Headquarters Step 2 : RESOURCE CONSUMPTION ACCOUNTING MODEL 10 Plant Labor Direct Materials Capacity 240 Hrs Capacity 240 Hrs Capacity Unlimited Finished Product Training HQ Reporting 1 lbs. per unit 4 hrs. per unit 2 hrs. per unit 80 hrs. per month 80 hrs. per Month 30 hrs. per month 80 hrs. per month Idle Plant & Maintenance Labor Plant Maintenance Calculated based on production Proportional Fixed

11. Corporate Headquarters Step 3 : RESOURCE CONSUMPTION ACCOUNTING MODEL 11 Plant Labor Direct Materials Capacity 240 Hrs Capacity 240 Hrs Capacity Unlimited Finished Product Training HQ Reporting 1 lbs. per unit 4 hrs. per unit 2 hrs. per unit 80 hrs. per month 80 hrs. per Month 30 hrs. per month 80 hrs. per month Idle Plant & Maintenance Labor Plant Maintenance Calculated based on production Materials Proportional Cost Fixed Cost xx Idle Labor Fixed-Training xx Fixed–HQ Reporting xx $300 $1.25 per hr $200 $0.83 per hr $10 per unit Proportional Fixed Given a production amount, costs flow through model

12. Corporate Headquarters MANAGERIAL ACCOUNTING – MULTI-LEVEL P&L 12 Plant Labor Direct Materials Capacity 240 Hrs Capacity 240 Hrs Capacity Unlimited 1 lbs. per unit 4 hrs. per unit 2 hrs. per unit 80 hrs. per month 80 hrs. per Month 30 hrs. per month 80 hrs. per month Plant Maintenance Calculated based on production $300 $1.25 per unit $200 $0.83 per unit $10 per unit Proportional Cost Fixed Cost 12 Corporate P&L Plant P&L Product P&L Materials Proportional Cost Fixed Cost xx Idle Labor Fixed - Training xx Fixed HQ Reporting xx Revenue xx Product Margin xx Plant Margin xx Corporate Margin xx

13. 13 www.RCAInstitute.org lwhite@rcainstitute.org 757 288 6082