Resource consumption accounting (RCA) is an emerging management accounting method that blends the advantages of German managerial accounting's emphasis on resources with those of the activity/process view provided by activity-based costing (ABC)--all couched in an enterprise-wide decision-support system. This system goes far beyond "cost accounting" to provide superior underlying information (broader availability and greater accuracy), which is fully integrated throughout the organization across the various reporting and planning systems. RCA takes advantage of an enterprise resource planning (ERP) system's ability to track, maintain, and group the most detailed information and to effectively integrate operational/logistical and monetary information. This detail will support the most precise analyses at the lowest levels (e.g., for a machine or its operators), yet it easily can be aggregated to provide summary-level strategic data or data grouping at virtually any other level.
The main purpose of the Clopay Plastic Products Company case study was to examine the changes in cost assignment and the ensuing benefits of implementing relevant RCA principles in one factory of a larger manufacturing company. Resource consumption rates developed during the case study used German-based Grenzplankostenrechnung (GPK) cost-assignment logic, an integral component of RCA. Additional RCA principles include selective use of ABC in cost-assignment methods, replacement cost depreciation, and theoretical capacity as the denominator in standard rate calculations. (1) Key points from the October 2004 Strategic Finance article (shown in the sidebar titled "Pre-RCA Issues and Post-RCA Features, Results, and Demonstrated Benefits") include important pre-RCA issues and post-RCA features, results, and demonstrated benefits for which we provide expanded discussion here.
CLOPAY AND THE PRE-RCA SYSTEM
Headquartered in Cincinnati, Ohio, and with filmmaking operations in Kentucky, Tennessee, Germany, and Brazil, Clopay Plastics is a leading manufacturer of specialty films, extrusion coatings, and laminations. Clopay's products serve hygienic, healthcare, protective apparel, and industrial markets. The case study was conducted at the Augusta, Ky., plant, which produces approximately 200 products in 60 product families serving primarily the healthcare and hygiene markets. Approximately 70% of the product families are in the healthcare market, and 30% are in the hygiene market. The Augusta plant's production process is illustrated in Figure 1. Production departments include five extrusion departments that house 10 extrusion lines and one converting department that houses two sheet-cutting lines, one perforator, and one rewinder. Five departments--shipping, materials management, quality, maintenance, and administration--support the manufacturing process.
[FIGURE 1 OMITTED]
The pre-RCA Clopay standard costing system (CSC), illustrated in Figure 2, is a relatively traditional standard costing system. Raw-material standard costs are established and assigned directly to products. Support department costs, including indirect labor, support labor, office supplies, and other depreciation, are allocated to production departments. Quality and maintenance are allocated based on machine hours, shipping is allocated based on production pounds, and plant material management is allocated based on purchased pounds. Administration, human resources, and accounting are allocated based on head count. All allocations are made using the direct allocation method (i.e., directly to production departments to be included in each department's cost allocated to products). No reciprocal relationships between support departments are recognized. At the production department level, direct labor, supplies and utilities, machine depreciation, and allocated overhead are assigned to products through the departmental machine rates using …