Analytical Study For Accounting on Resources Consumption As A Proposed Model For Developing Activity-Based Costing

shaheen, mohamed 


Introduction: Business managers have been looking for solutions to complex problems since before George Danzig developed the simplex algorithm for linear programs over a century ago. Dr. Eli Goldratt, the genius behind the Theory of Constraints, set his ambitions on maximizing throughput while simultaneously containing or even reducing operating expenses and inventory levels. Drs.Robert S. Kaplan and Robin Cooper set the foundations for measuring and managing activities that consume an organization‘s resources (ABC/M) in a number of articles between 1990-1995 and in 1998, thoroughly articulated their resource consumption model, capacity and performance systems in their book Cost and Effect (Harvard Business School Press). Numerous other thinkers contributed to the exploration of the interrelationships of resources, capacity, and profitability. Now, Anton van der Merwe and David Keys throw their hats into the resource/capacity ring. BACKGROUND In the mid 1980‘s, ABC came into prominence, a paradigm shift occurred in the way cost and its behavior were viewed. Processes became the primary drivers of costs. There was talk of the functional organization being replaced by an entirely process-oriented organization, and attempts were made to incorporate capacity management into ABC. Resources, viewed as general-ledger expense elements, were recast into the new light - the process view. Fifteen years later the functional organization is alive and well and the general opinion is that ABC had mixed, if not mediocre success in the market. The reasons are not fully understood and efforts are underway to gain more insight. The problems may lie in the philosophy itself or the ways in which it was applied, other shortfalls can be ascribed to the view that was adopted for ABC in regard to resources. Some companies plunged head long into a fixed-cost death spiral using ABC information. Some activity-based and traditional cost systems include the creation of —resource pools“. Likewise, resource consumption accounting provides a particular framework for viewing resources. Resources and related resource elements are first grouped into generic resource pools, using the following criteria: • Resources must be of a similar technology, i.e. labor in Dock 1 is grouped together and the forklifts are considered a separate resource pool. • Resource pool output and/or its relationships to consumers can be quantified and planned. • Actual data, costs and quantities, for each pool can be collected or imputed. RCA resource pools address the first three shortfalls as noted in the following paragraphs: output measure must be assigned to each resource pool, serving as a consistent measure of output to manage capacity. It provides insight into resource utilization, regardless of the mix of activities resources perform. Although resource output measures are used in ABC and other models, RCA‘s insistence on closer attention to the nature and relationship of resources provides insights for more accurate choice of output measures that better mirrors the differences and similarities between types of capacity. The first obvious difference between RCA and ABC is RCA‘s association of resource elements into a resource pool, which serves as the cost object for these elements for planning, collection of actual data (values and quantities) and variance calculation. Second, the output measure also serves as the resource cost driver, not to be confused with a ”resource driver‘ in ABC, which has the sole purpose of allocating expense elements to activities/processes. Though quantities are often used in ABC (e.g. full time equivalents), these ”quantities‘ seldom result in more than allocation ratios or percentages. In resource consumption accounting the output measure/resource cost driver has the following distinguishing characteristics: • The output quantity and associated expenses (fixed and proportional) are primary planning/budgeting outputs. • Consumers are charged for the actual resource output quantities consumed multiplied by fixed and proportional cost rates (actual or planned/standard rates can be used), • The actual output quantity is used to impute authorized resource pool expenses, i.e., answering the question: ”Given an actual resource output level of ”X‘, what should expenses in the resource pool be?‘ • Authorized expenses and the actual resource output level, when compared to actual costs and quantities, serve as the basis for variance calculation in the resource pool. A third notable difference is the pooling of interrelated resource elements that results in more homogeneous cost pools with enhanced levels of information. Finally, the recognition of a specific relationship (e.g., linear) between resource output and resource costs is another important distinction from the ABC view

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Keywords cost accounting- Resources consumption accounting
Issue Date Oct-2010
Publisher المجلة العلمية للاقتصاد والتجارة
Journal المجلة العلمية للاقتصاد والتجارة العدد الرابع اكتوبر 2010 - الجزء الاول 

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