Mid Term Take Home Essays Spring 2015
Mid Term Essays
/24/2015
List the three pillars or central concepts of RCA and describe the central features of the three pillars; then use this along with other items to explain how RCA fundamentally differs from traditional costing systems.
Three pillars of Resource Consumption Accounting:
1. Focus on their resources and consumption
2. Quantity structure for resource consumption
3. Recognizing the inherent and changing nature of costs
Pillar 1: Focus on their resources and consumption
In the first pillar of RCA, resources and costs associated with them are considered the fundamentals of proper cost modeling structure and decision supporting it. An organizational cost and revenues are all a function of the resources that produces them.
Pillar 2: Quantity structure for resource consumption
The entire model is constructed using operational quantities. Operational data is the foundation of value creation and the leading indicator of economic outcomes.
Pillar 3: Recognizing the inherent and changing nature of costs
Value is added as a layer to the quantity-based model and costs/dollars behavior is determined by the behavior of resource quantities as they are applied to value creating operations within an organization.
These three main pillars of RCA are important in understanding how this cost management system works. Understanding the differences between RCA and traditional costing system will help managers make better decision on which system to prefer under a given circumstances.
As we see in first pillar, RCA focuses on operational costs and resource consumption. RCA model uses more cost centers than traditional accounting methods. The key is to have each cost center’s resources as homogenous and hence grouping resources are easier to manage for any given output. In second pillar, we see focus is on quantity structure. Normal Costing’s method of explaining relationships are based on dollar values, but expressing this relationship on a
/24/2015
List the three pillars or central concepts of RCA and describe the central features of the three pillars; then use this along with other items to explain how RCA fundamentally differs from traditional costing systems.
Three pillars of Resource Consumption Accounting:
1. Focus on their resources and consumption
2. Quantity structure for resource consumption
3. Recognizing the inherent and changing nature of costs
Pillar 1: Focus on their resources and consumption
In the first pillar of RCA, resources and costs associated with them are considered the fundamentals of proper cost modeling structure and decision supporting it. An organizational cost and revenues are all a function of the resources that produces them.
Pillar 2: Quantity structure for resource consumption
The entire model is constructed using operational quantities. Operational data is the foundation of value creation and the leading indicator of economic outcomes.
Pillar 3: Recognizing the inherent and changing nature of costs
Value is added as a layer to the quantity-based model and costs/dollars behavior is determined by the behavior of resource quantities as they are applied to value creating operations within an organization.
These three main pillars of RCA are important in understanding how this cost management system works. Understanding the differences between RCA and traditional costing system will help managers make better decision on which system to prefer under a given circumstances.
As we see in first pillar, RCA focuses on operational costs and resource consumption. RCA model uses more cost centers than traditional accounting methods. The key is to have each cost center’s resources as homogenous and hence grouping resources are easier to manage for any given output. In second pillar, we see focus is on quantity structure. Normal Costing’s method of explaining relationships are based on dollar values, but expressing this relationship on a