INTRODUCTION

The role of management accounting is to provide the tools and information for planning,
monitoring and controlling enterprise performance and effective decision support. Managements
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.

Defination:
Resource Consumption Accounting (RCA) is formally defined as a dynamic, fully integrated,
principle-based, and comprehensive management accounting approach that provides
managers with decision support information for enterprise optimization.

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 GPK a (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 enterprises 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.

PRINCIPLES OF RCA
Causality
The principle of causality is the most important concept covering cause and effect relationship.
Causality requires resource flows and their costs to be modeled 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.

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 organizations economic flow of goods and services
regardless of its complexity.1

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.
RCA BENEFITS
Management Aspect Benefit
Analysis
A clear delineation of costs affected by decisions at different levels within management

1 -do-

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
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

CONCLUSION
RCA is a very emerging and productive cost accounting method which is well suited for todays
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.