0Introduction Marginal Costing as a - PDF by hjg19296


									                                0 Introduction:
                                Marginal Costing as a
                                Accounting Tool
            THIS ARTICLE        IS A REPRINT OF           CHAPTER 0         IN THE   11TH    EDITION OF THE          GERMAN
                AND IS USED WITH THE PUBLISHER’S PERMISSION.                             HERE    IS THE PUBLISHING

             INFORMATION:           KILGER/PAMPEL/VIKAS, FLEXIBLE PLANKOSTENRECHNUNG                                   UND

                        DR. TH. GABLER GMBH, WIESBADEN, 2002,                               WWW.GABLER.DE.

        THE    CHAPTER WAS TRANSLATED BY                      STEPHEN OFFENBACKER, TRANSLATOR AT SAP                             IN

            WALLDORF, GERMANY. THE TRANSLATION                             IS USED WITH THE PERMISSION OF                 SAP.

0.1 MARGINAL COSTING                   AS A      COSTING                    last 50 years. During this time, however, the demands
SYS T E M                                                                   placed on costing systems by cost management require-
This book,1 on the current state of standard costing,                       ments have changed radically. For this reason, we first
focuses on the methodology of Marginal Costing. Mar-                        need to look at how Marginal Costing is currently inte-
ginal Costing1B is a type of flexible standard costing                      grated into management accounting.
that separates fixed costs from proportional costs in rela-
tion to the output quantity of the objects.2 In particular,                 0 . 2 T H E T R A N S F O R M AT I O N   OF

Marginal Costing is a comprehensive and sophisticated                       M A N AG E M E N T AC CO U N T I N G
method of planning and monitoring costs based on                            Cost management concepts in management theory can
resource drivers. Selecting the resource drivers and sep-                   be divided into two groups: management concepts that sup-
arating the costs into fixed and proportional compo-                        port profitability objectives and meta-management concepts
nents ensures that cost fluctuations caused by changes                      based on universal objectives; in both cases the task of
in operating levels, as defined by marginal analysis, are                   coordination takes on central importance.4 In the first
accurately predicted as changes in authorized costs2B                       group, the focus is on results and on specific aspects of
and incorporated into variance analysis.                                    the management system.5 Here management account-
   This form of internal management accounting has                          ing comprises result- and value-oriented planning and
become widely accepted in business practice3 over the                       monitoring as a meta-management function, as well as

            M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   7    WINTER 2004, VOL.5, NO.2
coordinating the information supply system. This                          0.3 MARGINAL COSTING               AS A

approach focuses on more than just short-term prof-                       M A N AG E M E N T AC CO U N T I N G TO O L
itability, for it includes corporate value or shareholder                 1. Marginal Costing10 is clearly the core aspect of tradi-
value as long-term management accounting objectives.                      tional management accounting.3 Some of the classical
Through meta-management concepts6—the second                              applications of management accounting, however, have
group—management accounting supports company                              begun to lose their significance. The question thus aris-
management in planning and monitoring company                             es: What is the current role of Marginal Costing in mod-
activities but without replacing the coordination respon-                 ern management accounting?
sibilities of company management. Management                                 2. Businesses today frequently voice their disapproval
accounting supports this coordination function both by                    of the traditional cost accounting approaches. At the
establishing suitable coordination structures and                         beginning of the 1990s, these criticisms were taken up
processes in the planning and control system (system-                     by researchers involved with the applications of cost
centric coordination) and by furthering the diffusion of                  accounting concepts.11 The main thrust of the dissatis-
information (system-integration coordination).7                           faction with conventional cost accounting methods is
   Management accounting in practice has undergone                        that they are too highly developed and too complex,
great changes in the recent past. Management accoun-                      and furthermore are no longer needed in their current
tants increasingly see themselves in a proactive role,                    form since other tools are now available.12 Calls for
participating in the strategic decision-making process at                 increased use of cost management tools, investment
an early stage. In contrast, routine operational manage-                  analyses, and value-based tool concepts are frequently
ment accounting activities are losing their significance.                 associated with criticism of the functionality of current
Furthermore, management accounting tasks are no                           cost accounting approaches as management tools.13
longer perceived as the exclusive domain of central cor-                  This line of criticism sees little relevance in traditional
porate departments. Instead, management accounting is                     cost accounting tasks such as monitoring the economic
increasingly being incorporated into decentralized busi-                  production process or assigning the costs of internal
ness processes.8                                                          activities. At their current level of detail, such tasks are
   In many companies, production costing has lost its                     neither necessary14 nor does their perceived pseudo
dominant position as the main application of cost                         accuracy further the goals of management.
accounting tools. This is partly because of the increas-                     The viewpoint of the present author is that cost
ing levels of computer-controlled automation in modern                    accounting has by no means lost its right to exist, for it
production facilities, which mean fewer variances and                     is an easily overlooked fact that the data structure
consequently a loss of relevance for measuring costs                      required by the new tools is already present in tradi-
based on plan-authorized-actual comparisons. Another                      tional cost accounting.
factor is the increasing significance of outsourcing                         3. To assess the present-day value of Marginal Cost-
resulting from integration in more holistic value net-                    ing, the changes occurring in the business world must
works, which is lowering the relative significance of                     be analyzed more closely. We need first to look at how
individual companies’ production processes for cost                       the purposes of cost accounting15 are shifting before we
control.9 The inflexibility of highly sophisticated cost                  can determine its significance.
accounting structures tends to hamper the ability of the                     First, cost planning takes precedence over cost con-
production organization and production control to adjust                  trol. The effort involved in planning and monitoring
to these/such new situations. While the classical appli-                  costs is increasingly being seen as excessive. The
cation of management accounting in manufacturing is                       charge levied against traditional cost accounting—that
losing its relevance, the services sector in general and                  its complex cost allocations merely generate a kind of
the indirect areas of conventional manufacturing com-                     pseudo precision—lends further credence to this assess-
panies still harbor significant potential for expansion.                  ment. An alternative increasingly being called for is to
                                                                          control costs through direct activity/process information

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   8   WINTER 2004, VOL. 5, NO. 2
(quantities, times, quality) for cost management at local,                They should be implemented both in indirect areas and
decentralized levels instead of relying on delayed and                    at the corporate level. In addition, cost accounting must
distorted cost data. In particular, empirical U.S. research               be integrated into performance measurement.
on appropriate variables for performance measurement,                        Competitive dynamics are giving rise to an increasing
in the context of continuous improvement and modern                       differentiation of market-based profitability control-
managerial concepts, is based on this view.16 The need                    ling.21 This applies to the management of the prof-
for exact cost planning for profitability management is                   itability of products and product lines, as well as
thus touched on ex ante.                                                  distribution channels and increasingly customers, cus-
   Second, cost accounting must be employed as a tool                     tomer groups, and markets. The information required
for cost control at an early stage. The relative signifi-                 for this purpose can only be supplied by multilevel and
cance of traditional cost accounting as a management                      multidimensional marketing segment accounting based
accounting tool will decline as it is applied mainly to                   on contribution margin accounting.
fields where costs cannot be heavily influenced. More                        Long-term cost planning based on the idea of life-
significant than influencing the current costs of produc-                 cycle costing is gaining in prominence compared with
tion with cost center controlling and authorized-actual                   short-term standard costing. Product decisions are
comparisons of the cost of goods manufactured is timely                   increasingly based on more than just the cost of goods
and market-based authorized cost management. The                          manufactured and sales costs and now tend to include
greatest scope for influencing costs is at the early prod-                pre-production costs (such as development costs) and
uct development phase and when setting up the pro-                        phasing-out costs (such as disposal costs). Product deci-
duction processes. At the same time, this is the stage                    sions are viewed strategically. Whether or not a product
where cost information is most urgently needed since                      is successful is determined by the amortization of its
the time and quantity standards as defined by Bills of                    overall cost. Furthermore, the cost and revenue trend
Materials (BOMs) and production routings are still lack-                  forecasts should be more dynamic to support the life-
ing. This requires different methods of cost planning                     cycle pricing policy. This shift in cost and revenue plan-
than those normally provided by Marginal Costing.                         ning is moving cost and revenue accounting in the
   Third, the behavioral effect of cost information is                    direction of investment-related calculations.
starting to be recognized. There is a strong current of                      As management accounting is increasingly applied to
accounting research in the U.S. that takes human psy-                     the growing share of the costs of indirect areas, the tool
chological factors into consideration.17 This is resulting                requirements increase.22 After J. G. Miller’s and T. E.
in an extension of cost theory beyond its pure microeco-                  Vollmann’s discovery of the “hidden factory” as an area
nomic basis.18 Results of theoretical and empirical                       whose costs are neglected by conventional production
research based, for example, on the principal-agent the-                  costing in the U.S.,23 it was only a small step to the
ory indicate that knowledge of the “relevant” costs does                  identification of the lost relevance of conventional cost
not always lead to the optimization of overall enterprise                 accounting by H. T. Johnson and R. S. Kaplan24 and
profitability. Hence, the perspective that formed the                     their call to develop accounting systems separated into
basis for the absorption costing issue19 has changed.                     “process control, product costing, and financial report-
Theories according to which cost allocations can contain                  ing,” which eventually led to activity-based costing.25
information and increase the efficiency of the use of                     Improving the cost transparency of indirect activity
available capacity, or where future allocations can influ-                areas through Marginal Costing requires a thorough
ence ex-ante decisions, require empirical research.20                     understanding of the output processes. Analysis fre-
   4. The shift in the purposes of cost accounting is                     quently shows that even many support activities have a
being accompanied by a shift in the main applications                     wide range of repetitive processes for which planning
of standard costing. Costing solutions for market-                        and cost allocation using drivers is worthwhile, provid-
oriented profitability management and life-cycle-based                    ing the cost-volume is large enough. For this purpose,
planning and monitoring should be developed further.                      the different operations in the cost centers must be

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   9   WINTER 2004, VOL. 5, NO. 2
identified, for which resource consumption is then                         mance measurement reflects the general criticism of
planned and tracked. The number of these operations                        management accounting voiced by Johnson and Kaplan
is used as the driver.26 This process of costing opera-                    in Relevance Lost.37 It was recognized that short-term
tions using proportional costs competes with the                           accounting information is insufficient to evaluate and
attempt to achieve better cost transparency in indirect                    control company activities effectively. In particular, it
areas with process costing27 tools to also improve the                     was acknowledged that the use of standard costs does
planning and control of costs that were previously bud-                    not adequately take performance improvements into
geted only as a lump sum.                                                  consideration.38 Moreover, the conventional allocation
   Industrial production and marketing are increasingly                    approach based on the operating rate encourages high
being handled by groups of affiliated companies. To                        utilization of capacity at any cost,39 underestimates the
plan and monitor the costs of these activities calls for                   problem of increasing numbers of variants,40 uses the
the establishment of independent group cost account-                       wrong overhead allocation base, and fails to appreciate
ing.28 This necessity results mainly from the require-                     interdepartmental interrelationships.41,42
ments of inventory valuation, the costing basis of                            While top management benefits most from financial
transfer prices, and to further the consistency of corpo-                  success indicators that it examines in monthly or longer
rate cost accounting. Group cost accounting leads to the                   intervals and that can consist of multidimensional
definition of independent group cost categories.29 Mar-                    aggregate figures, lower management must necessarily
ginal Costing and its tools have been developed for                        be concerned mainly with nonfinancial, operational, and
individual companies and are the suitable platform for                     very short-term data at the day or shift level.43 In con-
this expansion.                                                            crete terms, measures in the categories of time, quanti-
   Performance measures are gaining increasing promi-                      ty, and quality—such as equipment downtime, lead
nence in decentralized management accounting. Stan-                        time, response time, degree of utilization (ratio of actual
dard U.S. management books devote a great deal of                          output quantity to planned output quantity), sales
space to performance measurement in the broad sense                        orders, and error rate—are becoming increasingly signif-
of the word.30 The concept is broad for the reason that                    icant for controlling business processes.44
performance measurement is accompanied by the pro-                            In the strategic dimension, the Balanced Scorecard
vision of decision-support information, the management                     developed by Kaplan and Norton—which links finan-
of business units, and the use of incentive systems.                       cial and nonfinancial indicators from different strategi-
Using modeling and empirical research, the exponents                       cally relevant perspectives including cause-effect
of this area are developing the idea that monetary fac-                    chains—is the main proposal under consideration for
tors are not the only possible components of perfor-                       performance measurement.45 The Balanced Scorecard
mance measurement.31                                                       links strategic contingencies to financial measures,
   Since the 1980s there has been a growing conscious-                     incorporates success factors of the future, and explicitly
ness of the significance of continuously improving the                     includes monetary and nonmonetary parameters.46 The
performance capabilities of the company, resulting in                      Balanced Scorecard therefore provides a framework for
the increased importance of nonmonetary indicators.32                      systematic mapping and control of the critical success
The recent literature on performance measurement has                       factors for an enterprise. A Balanced Scorecard is a sys-
focused on problems in the following areas:                                tem that defines objectives, measures, targets, and ini-
◆ The usability of performance information for                             tiatives for each of the four perspectives47 of financial,
    managers,33                                                            customer, internal business process, and learning and growth.
◆ The assessment of teamwork,34                                            Further analyses and experience in measuring perfor-
◆ The motivational effects35 of performance                                mance can enable identification and assessment of
    measurement,                                                           cause-effect relationships within the four perspectives
◆ The strategic dimension.36                                               (such as the effect of delivery time on customer satis-
   The tenor of the recent investigations into perfor-                     faction) and between the perspectives (such as the

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   10   WINTER 2004, VOL. 5, NO. 2
effect of customer satisfaction on profitability). The                       agement requirements, in particular, dictates the calcu-
knowledge so gained may eventually lead to a reformu-                        lation of these margins.50
lation of strategy.                                                             Also along these lines are proposals in the literature
   In the context of comprehensive performance mea-                          for integrating alternative cost assignments to include
surement, even short-term costs and financial results                        overhead costs as contribution amounts for pricing pur-
can serve as control instruments for strategic enterprise                    poses on the basis of contribution margin accounting.51
management, such as a lower authorized cost of goods                         Although controversial,52 the combination of contribu-
manufactured as a benchmark. Concrete planned costs                          tion analysis and the allocation methods of Process
and planned results must be rigorously derived from                          Costing/ABC have begun to be practiced53 in profitabil-
higher-level target factors so that specific requirements                    ity and sales accounting.
can be derived in turn when they are broken down into
smaller organizational units for the time and quantity                       0 . 5 R E L AT I O N S H I P B E T W E E N M A R G I N A L
standards.                                                                   COSTING      AND     PROCESS COSTING/ABC
                                                                             1. Process Costing/ABC has often been contrasted with
0 . 4 R E L AT I O N S H I P   OF   MARGINAL COSTING                         standard costing and contribution margin accounting.3
TO   R I E B E L’ S D I R E C T C O S T I N G   AND                          The verdict depends on whether Process Costing/ABC
CO N T R I B U T I O N M A R G I N AC CO U N T I N G                         is viewed from the angle of absorption costing or vari-
1. The dispute that raged in the 1960s and 1970s                             able costing.54 For this reason, an objective appraisal of
between the proponents of Marginal Costing on the                            Process Costing/ABC must take into account the objec-
one hand and Riebel’s Direct Costing and Contribution                        tive it aims to fulfill.55 Below, Process Costing/ABC is
Margin Accounting on the other has since been settled.                       analyzed with respect to its objectives and procedure,
The objection raised against the direct cost approach—                       the use of cost drivers, the cost categories, and the
that it is infeasible in practice because the required data                  meaningfulness of its results.
structures would be too complex—has been solved by                              2. Process Costing/ABC is characterized by specific
modern database technologies. The proponents of                              objectives and a special procedure. Its origins in the
direct costing and contribution margin accounting are                        United States as activity-based costing were prompted
no longer so adamant about avoiding all costing                              by the declining proportion of costs driven by volume,
approaches that go beyond simply assigning relative                          which motivated companies to search for other cost
direct costs to reference objects.48 In addition to the                      drivers.56 The German adoption is likewise explained
dominance of production-based Marginal Costing, mul-                         by the increase in fixed costs.57 The objectives of
tilevel and multidimensional contribution margin                             Process Costing/ABC can be divided into the areas of
accounting approaches have, in fact, become accepted                         costing and cost management. Process Costing/ABC is
in practice, particularly for profitability and sales                        not more capable of transforming fixed overhead into
accounting.3 In these approaches, however, cost assign-                      variable direct costs than any other method. On the
ments to a wide variety of profitability segments are                        contrary, allocating these costs leads to full absorption
supplemented by assignment methods such as driver-                           costing and all its attendant dangers. The assignment
based costing or Process Costing/ABC, methods which,                         of costs to cost drivers for cost management purposes
in principle, are unrelated to direct costing and contri-                    appears less problematic and is geared more to the view
bution margin accounting. Thus accounting methods                            of long-term influence. A distinction must be made
are merging.                                                                 here between the contributions of process analysis
   2. In addition to the profitability of products, of                       (which precedes implementation of Process
increasing significance is the differentiation of customer                   Costing/ABC) and operational Process Costing/ABC
profit margins resulting from different revenues and                         based on optimized process structures.
costs due to differing distribution channels and service                        Process Costing/ABC is useful mainly in the analysis
requirements.49 The satisfaction of key account man-                         phase by indicating starting points for process optimiza-

             M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   11    WINTER 2004, VOL. 5, NO. 2
tion, which makes it an organizational tool.58 This                        tive. As a result, increased demand for Marginal Costing
enables enhanced resource allocation.                                      in service areas and support activities61 with high fixed
   Operational Process Costing/ABC affects cost policies                   costs would usually be accompanied by an unavoidable
due to the following factors:                                              undermining of the marginal principle as a cost assign-
◆ Increased opportunities for control in areas previous-                   ment method—unless one has no interest in explaining
    ly managed on the basis of aggregate costs,                            the low proportions of costs that depend on the level of
◆ Representation of cost drivers with effects on                           output in these areas. In practice, the price often paid
    multiple cost centers,59                                               for this theoretical restriction is a broad, pragmatic inter-
◆ Determination of the costs of nonvalue-adding                            pretation of the variability/proportionality of costs and a
    processes,                                                             liberal application of the scope of the resource drivers in
◆ Transparency of long-term cost-influencing                               indirect activity areas. This usually forces further devel-
    relationships,                                                         opment of resource-driver-based assignments.
◆ Creation of cost pressures and the establishment of                         More or less as an alternative, adherents of Process
    supply-demand relationships for internal support                       Costing/ABC argue for acceptance of a different inter-
    activities (process costing only),                                     pretation of cost assignment that will be discussed in
◆ Costing support for management of target costing.                        more detail below. This implies that the Process
   Cost information is needed in the early phases of                       Costing/ABC methodology in accounting in general has
product development when neither the facilities nor                        a supplementary function to cost management and
the capacity of the cost centers is known. Under such                      should not necessarily be incorporated into the results
conditions, information on the cost effects of product                     of financial accounting. On the other hand, the method-
attributes that have not been finalized, and consequent-                   ology of Process Costing/ABC influences modern stan-
ly the requirements for activity output, can only be                       dard costing in that the results of process analysis lead
gained through process standards which are valued.                         to an even greater focus on activities in cost account-
   Process Costing/ABC consists of the following                           ing.62 Process analysis thus also identifies processes and
steps:59B                                                                  cost drivers that enable improvements in planning, allo-
◆ Analysis of the range of activities performed by the                     cation, and cost control for variable costs that were not
    company’s departments,                                                 previously captured by the cost accounting system. In
◆ Identification of cost drivers,                                          addition, the activity relationships revealed by process
◆ Structuring of main processes and subprocesses,                          analysis corroborate the explanation of variances and
◆ Entry (and planning) of process quantities,                              particularly their association with multiple cost centers.
◆ Definition of process rates/prices,                                      In this sense, then, the relationship between Marginal
◆ Costing the cost objects based on process utilization.                   Costing and Process Costing/ABC as cost allocation
   3. Marginal Costing is based on the use of resource                     models is not only one of competition but also comple-
drivers for cost planning, cost control and analysis, and                  mentary.
cost assignment.60 To meet this requirement, only one                         Compared with extending the application of cost
resource driver per cost center is usually insufficient.                   assignment to support activities using resource drivers
Instead, a stronger differentiation of the cost centers                    as in Marginal Costing, which is achieved mainly by
and/or multiple resource pools is frequently necessary.                    moving away from the use of purely time-based
This ensures that the main goal of Marginal Costing—                       allocation bases,63 a closer look at the use of Process
monitoring efficiency with an emphasis on proportional                     Costing/ABC tools reveals additional methodological
resource consumption—can be optimally achieved by                          differences. These differences include a different defin-
the cost centers. Within a consistent Marginal Costing                     ition of output measures in the form of process/activity
system, however, the scope of these drivers may be                         cost drivers that are not necessarily volume-based and
inhibitive. Especially for support activities, the use of                  different cost categories compared to Marginal Costing.
indirect (value-based) drivers is often the only alterna-                     The concept of ABC cost drivers can be understood

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   12   WINTER 2004, VOL. 5, NO. 2
as “a measure or measures of the cause of costs, or more                   operations, planning and control processes, preliminary
precisely of the usage of resources, as well as a measure                  activities, service activities to maintain internal capabili-
or measures of output.”64 The cost drivers therefore                       ties, and administrative activities.72
have a specified relationship to resource usage (in                           The attempt to measure the extent to which process-
hours, for example) and to the activity quantity. This                     es create customer benefits, and are thus value adding,
definition makes a valuable point by calling into ques-                    frequently provides particularly valuable information for
tion the approach of treating the cause of costs as the                    cost management by identifying the costs of nonvalue-
sole cost allocation principle. The cost drivers are only                  adding processes.73 This, however, should not distract
partially dependent on the volume, which means that                        from the fact that this requires one to first define what
other cost determinants could be identified and valuat-                    “value-added” entails and then analyze the value-add
ed as well. ABC literature groups cost drivers into dif-                   of each individual process on that basis.
ferent categories. For example:                                               4. The second basic aspect of Process Costing is
◆ Volume-dependent and volume-independent cost                             defining the cost categories. These cost categories are
    drivers (R. Cooper),65                                                 based on the process dependency of cost center costs,
◆ Process factors that depend on volume, complexity,                       typically using the following classification:74
    and efficiency (G. Foster),66                                          ◆ Output-volume-related process cost,
◆ Process-dependent, complexity-dependent, and                             ◆ Output-volume-neutral process cost,
    order-specific cost drivers (A. Renner).67                             ◆ Costs unrelated to the process.
   In Process Costing/ABC, the processes are essentially                      The division of costs in ABC can also be recognized
an additional level between cost center accounting and                     in this classification, although cost theory must neces-
job order cost accounting in Marginal Costing. The                         sarily alter this division in the decision systems. By
German version of Process Costing/ABC as defined by                        defining a category of costs unrelated to the process,
P. Horváth and R. Mayer takes the additional step of                       the proponents of process costing take into account the
grouping together the subprocesses from the cost cen-                      fact that a cost center can incur costs that have no rela-
ters into main processes. An important innovation of                       tionship to any processes (such as the costs of backup
process costing is thus its systematization and structur-                  facilities). The output-volume-neutral process costs are
ing of the activity network.                                               incurred for resources that are required to execute
   In the United States, grouping subprocesses into                        processes but that do not vary with the number of exe-
main processes is not a particularly important concern                     cuted processes (such as the cost of office space).
because U.S. companies do not have such a differentiat-                    Process costing attempts to allocate as much of the
ed cost center structure. The identification of cost dri-                  resources consumed as possible to output-volume-
vers is not bound to the rigors of sophisticated                           related process costs. To achieve this, subprocesses are
driver-based accounting (such as Marginal Costing), and                    defined in the cost centers that at least explain the ori-
process/activity cost drivers remain problematic because                   gin of the costs through the resources consumed. For
the cost drivers of the main processes are not the same                    example, a typical analysis will indicate the extent to
as the measures of the subprocesses (e.g., different allo-                 which a process consumes personnel resources. On this
cation levels, such as the number of purchase orders for                   basis, personnel costs are assigned to the processes and
the main process Order Material).68 The selection of                       apportioned.
appropriate cost drivers therefore requires considerable                      The process cost rate is usually calculated by divid-
creativity and must be done with great care.69 The pen-                    ing the output-volume-related and the output-volume-
etration of different activity areas can be clarified by a                 neutral process costs by the process driver quantity.
systematic approach that differentiates the various                        It should be noted that the output-volume-related
processes.70 W. Männel’s comprehensive classification71                    costs, however, are neither direct costs nor variable/
of processes based on their proximity to production dif-                   proportional costs in the traditional decision-oriented
ferentiates between production-related activities, setup                   accounting sense but are based on a different cost

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   13   WINTER 2004, VOL. 5, NO. 2
assignment principle.                                                      introduces a new cost assignment principle, which we
   It should also be noted that process costing theory                     call the principle of resource usage.81 R.S. Kaplan and
does not envisage a full allocation of costs to individual                 R. Cooper speak of a “model of resource usage, not
products but, rather, an assignment of costs in accor-                     spending”82 even in the case of activity-based costing.
dance with the following different allocation levels:74B                   During the debate of absorption costing versus variable
◆ Individual product units,                                                costing, the literature early on designated the method
◆ Orders,                                                                  of assigning costs based on capacity83 as the “principle
◆ Particular product types,                                                of proportional consumption”84 and controversially dis-
◆ Entire departments.75                                                    cussed this approach long before the advent of Process
   5. In any event, even P. Horváth and R. Mayer                           Costing/ABC.85
believe that product costing should receive only the                          In Process Costing/ABC the cost of capacity (cost
costs of those processes “that are directly related to                     center) is allocated to the completed or planned
material procurement, material logistics, or order plan-                   processes. The justification and interpretation of cost
ning and fulfillment.”76                                                   assignment based on capacity thus proves to be valu-
   The meaningfulness of Process Costing/ABC unit                          able for process costing. Allocation of fixed costs based
product cost information is, however, frowned upon.                        on the proportional utilization of capacity, as incorporat-
From the perspective of decision-based cost theory, the                    ed in the proposals for process costing, can only be built
overstatement of the variability of cost and the alloca-                   on a cost-effect relationship.86 The cause-effect princi-
tion of costs within Process Costing/ABC is criticized on                  ple as commonly understood is thus neither justified for
a number of levels:77                                                      Process Costing/ABC, as understood here, nor required
◆ Within the cost centers, personnel costs are distrib-                    for its main purposes in cost management. It is surpris-
    uted to the subprocesses based on the proportion of                    ing that there is little or no discussion of this point other
    time required (i.e., FTEs).                                            than in the quoted exceptions—even though as far back
◆ Other costs are frequently assessed based on these                       as 1961 Schneider came to the conclusion that “there
    personnel costs.                                                       can be no unified cost allocation principle. The only
◆ In process costing the output-volume-neutral process                     generally applicable concept is that the accounting pur-
    costs are distributed proportionally to the output-                    pose determines the allocation principle and conse-
    volume-related processes costs (which corresponds                      quently the contents of accounting.”87
    to a traditional costing method of overhead cost                          6. It would seem to be the logical next step to use
    burdening/spreading).                                                  the activity-based cost assignments of the defined
◆ Process costs are allocated to the process units by                      processes for capacity planning as well. In the tradition-
    establishing process consumption ratios.                               al approach, capacity requirements are determined from
◆ The process quantities are assigned to the product                       the required process quantities and the defined
    units based on ratios.                                                 resource usage.88 The knowledge gained is chiefly
   Altogether, then, the information content of unit-                      directed at the possibilities for identifying overcapacity:
based process/activity costs must be regarded critical-                    Capacity management, “with its renewed focus on idle
ly,78 and the purposes undergirding this costing                           capacity as the key to eliminating waste in organiza-
methodology must be kept in mind.79 The proponents                         tions, will have a significant impact on the design and
of process costing regard it as valid over the long term                   use of an activity-based management (ABM) system.”89
by speaking of “strategic costing” as reflecting the long-                    At a basic calculation level, the equation “cost of
term influencing ability by capturing the relationship                     activity supplied = cost of activity used + cost of unused
between products and resource usage. The example of                        activity”90 is proposed. This requires a decision on the
personnel cost assignment illustrates this point quite                     allocation principle—that is, the question regarding the
clearly.80 This type of cost assignment can only be logi-                  capacity-based denominator to be used in process cost-
cally implemented if one accepts new cost categories or                    ing. It must be decided which capacity volume to use as

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   14   WINTER 2004, VOL. 5, NO. 2
a basis for determining the potential process volume for                   0.6 PREREQUISITES          FOR    EFFECTIVE     AND

apportioning the capacity costs to the individual                          EFFICIENT USE        OF   MARGINAL COSTING
processes. Kaplan proposes using the planned or sched-                     1. An empirical study in Germany found that Marginal
uled capacity (the actual capacity provided).91 Follow-                    Costing is used by 49% of small companies, 65% of
ing E. Gutenberg’s distinction between idle-capacity                       mid-sized companies, and 61% of large companies and
cost and used-capacity cost, this enables an extension of                  that 42% of all companies use marginal costs in short-
process costing variance analysis to include idle-capacity                 term operational accounting.99 These results show that
analysis.92 Brühl calls for a distinction to be made here                  Marginal Costing is being used at a higher rate than
between fixed and variable process costs and that, with                    that measured by earlier studies,100 although the study
the latter, a further differentiation by resources of dif-                 also indicates that more than half of all companies sur-
ferent volume-adjustment capability be undertaken in                       veyed are costing with full costs at the same time and
order to provide a clear breakdown of the capacity uti-                    are thus deploying Marginal Costing as a parallel cost-
lization variances.93 In contrast, the U.S. approach starts                ing system.101 Marginal Costing has thus retained its
from costs that do not vary directly with the operating                    dominant position in German-speaking countries, being
level and attempts to analyze the cost pool in a way that                  employed chiefly in its conventional application area of
provides useful information on the cost drivers.94 Both                    production, and continues to have great significance as
this approach and Brühl’s, however, assume that only                       a basic core methodology for planning and control of
one process per cost pool or cost center95 is possible.                    costs generally. Indirect activity areas continue to be
    The correct application of this methodology depends                    pervaded by the Marginal Costing approach, but this is
on the interpretation of idle-capacity costs. If process                   usually accompanied by convergence with the princi-
costing is primarily seen as a tool for measuring the                      ples of process costing. This widespread usage of Mar-
usage of resources,96 then the interpretation is much                      ginal Costing seems to support the conclusion that it
less challenging!97 As early as 1965, W. Lücke proposed                    still effectively supports companies’ goals in practice.
using idle-capacity costs as a measure for capacity har-                   The question arises, however, as to how a flexible stan-
monization and optimizing idle-capacity costs in the                       dard costing system should be designed to ensure maxi-
case of bottlenecks to establish product mix.98                            mum efficiency.
    But the meaningfulness of reported idle-capacity                          2. Internationally, and particularly in the United
costs is viewed here no less critically. With an appropri-                 States, standard costing was never very highly developed.
ate design of resource-driver-based allocation, the idle                   Consequently, modern cost management—and especially
capacity can be quantified directly in time and quantity.                  ABC—has moved toward a new cost accounting
This also appears to be easier for management to inter-                    approach as a replacement for standard costing. In the
pret. If, however, one wants to measure the costs of the                   United States, activity-based costing has often been able
different cost center outputs (the effect of current                       to make the costs of support activities transparent for the
resources on profitability revealed by this approach is an                 first time, including support activities in production.
argument in its favor), then it would be better to report                     3. In contrast, German-speaking countries had by
unused capacity explicitly rather than simply allocating                   the 1960s already implemented a cost accounting
it to process/activity output.                                             approach that ensured significantly more transparency
    In conclusion, we have seen that process costing and                   for planning and control of costs in the different depart-
Marginal Costing are fully complementary approaches to                     ments. The Marginal Costing approach developed by
cost management. The use of cost allocation methodolo-                     H.G. Plaut and W. Kilger is based not only on a particu-
gies that go beyond those of Marginal Costing requires,                    lar methodology but, as a cost-accounting reporting sys-
however, a new interpretation of the reported costs. This                  tem, includes a variety of conceptual provisions. The
requirement becomes even more significant the more                         theoretical-methodological rationale for these provisions
closely the Marginal Costing elements of an integrated                     continues to hold its validity. Yet practice has not always
cost accounting solution adhere to the theoretical basis.                  followed theory in every detail. The current tendency is

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   15   WINTER 2004, VOL. 5, NO. 2
toward a simplification of cost accounting as illustrated                    gences can further be avoided through a uniform
in the following points.                                                     monthly accrual of sales deductions and sales costs in
                                                                             internal and external accounting.
0.61      THE CONCEPT             OF    B E N E F I T- B A S E D                Consequently, the magnitude of a reconciliation is
C O S T S 101B                                                               determined by the degree to which the specific costing
The concept of benefit-based costs has found wide-                           purposes of cost accounting require divergences from the
spread acceptance, and not only in Marginal Costing.3                        financial accounting systems. Even the proponents of
It must be kept in mind, however, that this concept is                       tighter integration see limits in reducing divergence.106
only needed for highly specialized cost accounting                           Better opportunities are envisioned in the increasing
purposes.102 This is the basis of decisions under certain                    internationalization of external accounting.107 If one fol-
assumptions, such as for company sustainability in the                       lows the majority of recommendations, particularly in
context of the target system or for the purposes of inter-                   textbooks, a considerable degree of divergence is implied
company comparisons when factors such as different                           just by the established definition of the benefit-based
financing structures must be eliminated. While the rea-                      cost concept.108 Also, in this current discussion, the
soning behind such imputed costs for depreciation,                           necessity of a separate cost accounting system is justified,
interest, or risks is often doubtful with regard to the                      for example, by the need to provide for opportunity costs
investment assumptions and their actual decision rele-                       appropriate to the costing purpose at hand.109
vancy, more critical are the disadvantages of this                              It is recommended, however, that at least in individ-
approach for profitability management. On the one                            ual cases an investigation be made into whether the
hand, management of profitability based on internal                          advantages of pursuing specific purposes in the cost
and external results is not consistent due to differing                      accounting system outweigh the negative consequences
expense and cost information; on the other, the expect-                      of the divergences with respect to transparency and
ed tax effects of decisions are frequently inaccurate                        additional effort in accounting. Of course, for the defini-
because the internal result is less profitable than the                      tion of such a cost category for one-time special costing
financial accounting result due to the additional imput-                     purposes, costing-specific determinations are only limit-
ed costs.103 Therefore, a higher level of accounting uni-                    ed by cost-benefit considerations.
formity is called for—especially with regard to imputed
depreciation and imputed interest—when an integrated                         0.62 MARGINAL COST PRINCIPLES                    AND

accounting system is required.104                                            THE   TIME SCALE       OF   COST PLANNING
   As a starting point for eliminating divergence, the fol-                  In analyzing actual practice in the field, one notices that
lowing design recommendations of W. Männel should                            marginal costs or proportional costs are normally
be considered:105 If one wants to avoid excessively high                     defined very broadly. For example, despite all reasons
imputed depreciation in cost accounting, one must do                         to the contrary, personnel costs are frequently defined
without the use of replacement values. To avoid inter-                       as proportional costs. Consistent with the reporting sys-
preting profits as costs, interest costs are calculated                      tem of Marginal Costing, this practice can be justified
using only the interest on outside capital. To the                           by the time scale used in cost planning and particularly
authors, a more purposeful approach would be to                              cost differentiation. It is a well-known fact that the
exclude interest costs from the operating result com-                        longer the chosen time scale, the more avoidable costs
pletely and leave that aspect to the calculation of finan-                   become.
cial income. This also ensures better compatibility with                        Since the increasing level of automation in modern
the tools of value-based management. Similarly, report-                      production systems and better computer support for
ing purely imputed costs as components of the imputed                        administrative processes are reducing the significance of
profit should be dispensed with. As far as possible, all                     short-term authorized-actual variances, the focus is mov-
cost elements should be taken over from monthly                              ing more and more toward assessing efficiency based on
expense accounting within financial accounting. Diver-                       how resources are adjusted in the medium term. For

             M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   16   WINTER 2004, VOL. 5, NO. 2
example, production management’s primary objective is                       0.64     CO ST C E N T E R AC CO U N T I N G
no longer to determine that a lower operating level does                    The opportunities for simplifying cost accounting stem
not automatically reduce the authorized costs by an                         from the changes in organizational structures prompted
amount equal to the fixed personnel costs, but instead is                   by efforts in recent years to implement lean manufac-
interested in how management is able to implement all                       turing.112 The consequent increases in outsourcing (par-
options for adjusting personnel costs through overtime                      ticularly in the support activities) that enable greater
reductions, vacation, or internal transfers.                                focus on core competencies diminish the proportion of
                                                                            secondary costs in companies’ overall pool of cost ele-
0.63      TRANSFER PRICES               AND     B E H AV I O R              ments. This, in turn, reduces the complexity across all
O R I E N TAT I O N                                                         levels of cost accounting.
The conventional approach to assigning the costs of                            A simplification of cost center accounting can be real-
internal activities in decision-based accounting, for                       ized in a number of ways. A greater reliance on out-
example by using complex equations, has received                            sourcing results in a direct reduction in the number of
heavy criticism both from practitioners in industry and                     cost centers. If company organization is based on inte-
from theorists.110 This topic is concerned with method-                     grated value chains, a differentiation of cost centers for
ological mastery on the one hand and with the ability to                    cost assignment purposes is not needed because even
influence behavior on the other.                                            the costs of large cost centers can be assigned on a
   The problem of the methodological deployment of                          product basis. The number of different workplaces can
cost accounting has generally been solved through the                       be reduced by procuring identical facilities and equip-
use of modern off-the-shelf software. The spread of                         ment, which reduces complexity and thus homogenizes
computer-supported administration systems enables                           the capacity structures.
provision of the required data, which, in turn, enables
automation of the processes by integrating the output                       0.65     T HE R ESOURCE D RIVER M ETHODOLOGY
data and related cost information in the cost accounting                    The methodology around resource drivers pioneered by
software. In addition, the growing tendency towards a                       Kilger still attracts interest today, and its basic design
lower complexity of internal activities through outsourc-                   concept remains the state of the art.113 Due to the
ing and the integration of support activities reduces                       strong interest in improved application of cost account-
demands on the assignment of support costs.111 The                          ing in support activities, the application of direct
integration of support activities such as maintenance                       resource drivers has received more attention in recent
tasks, performed by production teams, often means                           years. In this regard, one of the influences of process
there is no separate assignment of such activities. This                    costing has been a movement toward using the number
applies to both period-based and cumulative cost                            of defined processes rather than measuring drivers in
assignments, as well as to settlement/liquidation of indi-                  quantities and times only. But ongoing improvements
vidual activities for internal orders/jobs.                                 in automatic data capture through better data process-
   As described above under the purposes of cost                            ing support for all business processes mean that more
accounting, the ideas behind a behavioral cost account-                     and more activities are becoming economically measur-
ing approach are particularly relevant for determining                      able for which it was previously infeasible to plan and
transfer prices. Institutional-economic considerations                      control costs with direct drivers.
transcend the conventional Marginal Costing principles
of transfer prices. Whether practical recommendations                       0.66     VA R I A N C E S   IN   COST CENTER
can be derived from these theoretical elements remains                      CONTROLLING
to be seen, however. But at least research in this area is                  The decreasing significance of proportional costs and
starting to summon up more understanding for the fact                       variances due to higher levels of automation and
that transfer prices higher than the proportional costs                     improved planning is enabling more and more compa-
are common in practice.                                                     nies to dispense with comprehensive variance analy-

            M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   17   WINTER 2004, VOL. 5, NO. 2
sis.114 In place of often untimely and excessively aggre-                   cial modification to reflect a significant cost difference.
gated cost variance information, daily or even shift-                       In particular, separate costing of variants that have low
based information on performance variances in the                           cost significance should be avoided.118
categories of time, quantity, and quality are becoming
more widespread. A full rollup of the cost variances of                     0 . 6 8 E L A B O R AT I O N   OF   CONTRIBUTION
service cost centers to primary cost centers is being sup-                  M A R G I N AC CO U N T I N G
planted by cost management based on the variances in                        Profitability analysis can be simplified if the cost model
the service cost centers alone. In such cases, it is suffi-                 is designed such that assignable fixed costs can be
cient to allocate activity costs standardized during the                    recorded directly on profitability segments. This
fiscal year to control activity consumption in the receiv-                  increases the transparency of profitability reporting.
ing cost centers.115                                                        Moreover, companies with tightly integrated and highly
   This leads to the idea of reducing the frequency and                     streamlined internal value chains can plan profitability
level of detailed variance analysis. Integrated produc-                     more reliably because there are fewer interdependen-
tion facilities, in particular, can be controlled by track-                 cies, which ensures that management at all levels focus-
ing and allocating costs at summarized levels because it                    es on particular profitability objects.
is possible to trace variances back to individual ele-                         For existing production and product portfolio compo-
ments by means of technical analyses, and, in any case,                     nents, standard cost estimates are frequently sufficient
an hourly rate for the system as a whole is sufficient for                  for profitability management during the fiscal year—
costing purposes. The cost variances detected by cost                       that is, products in repetitive manufacturing and mass
controlling are then transferred directly to the operating                  production are costed only once a year to determine
result.                                                                     order profitability or valuate inventory changes.119
                                                                            Here, too, it is clear that the better the preliminary cost
0.67      VA R I A N C E S   IN   A U T H O R I Z E D - A C T UA L          estimate and the costing preparation and planning,120
C O M PA R I S O N S   FOR THE      COST      OF    GOODS                   the lower the actual cost variances against the target
M A N U FA C T U R E D                                                      costs calculated at standard cost. These variances flow
As Riebel’s Direct Costing and Contribution Margin                          directly into the operating result. The standard cost
Accounting began to merge with Marginal Costing,                            estimates and contribution margin cost estimates should
sales accounting became more sophisticated in                               be retained as long as possible for this purpose.121
practice.116 The greater transparency of relationships                         Concentrating the sophistication of profitability
among resources, processes, and products achieved by                        analysis on dimensions that are relevant to profitability
means of value chains simplifies costing almost auto-                       management leads to a simplification of the profitability
matically. An additional factor is that the growth in out-                  management system.122 Not all possible characteristics
sourcing increases the percentage of direct product                         of profitability segments must be managed and ana-
costs that pose no difficulties in assigning. A reduced                     lyzed, but only those that are significant for effective
number of variants lowers the percentage of costs that                      profitability management, such as product, market/cus-
are not directly product related because process costs                      tomer, distribution channel, or sales region. It must not
less closely represent overhead for individual product                      be forgotten, however, that modern software conve-
variants. Reducing product complexity through the use                       niently supports the linkage of sales data to cost and
of modular designs and nonvariable parts also leads to a                    revenue information for individual orders and that data-
structural simplification of costing functions.                             bases can easily manage the corresponding volume of
   Costing effort declines significantly when similar                       data. IT support for simulations and for generating
costing objects can be grouped together.117 Instead of                      detailed plans by means of data manipulation increases
costing a large number of variants, it is often sufficient                  the feasibility of increased sophistication of multidi-
to cost only one reference product and then either                          mensional and multilevel market segment calculations,
apply the costing result to all variants or allow for a spe-                but it is easy to overlook the costs associated with such

            M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   18   WINTER 2004, VOL. 5, NO. 2
information for the users of these systems. Further-                         can influence the company’s level of performance and
more, there is a temptation to experiment intensively in                     serve to control the company’s output of goods and ser-
order to cast one’s own position in a more favorable                         vices. In principle, management accounting also sup-
light. For this reason, standardized reports lead to more                    ports cost management as a subtask of management.
transparency even in interactive information systems.                        Conversely, cost management changes the starting situ-
This remains the case even when modern MIS con-                              ation of management accounting by influencing costs
cepts are used to support the analysis and with the gen-                     from the early stages of planning onward, introducing
eration of reports or when automated data mining                             new cost accounting tools, and enhancing the general
routines are employed to support profitability analysis.                     awareness of costs in the company. The new tools of
   On the other hand, evaluation of the information is                       cost management are frequently highly pragmatic in
also becoming more specialized. In industry and retail                       concept, comprising relatively unrestricted but proven
as well as services, the changing nature of consumer                         methodologies. The cost information they generate
and purchaser behavior is heightening the importance                         serves the purposes of strategic planning in different
of partner relationships, meaning that focusing on the                       phases (particularly analysis, determination of alterna-
profitability of individual products can result in subopti-                  tives, implementation of strategies, and strategic con-
mal decisions on product mix.123 Since affiliation mod-                      trol)128 and must therefore fulfill other requirements
eling (such as with cross-elasticities) has not been                         than those of short-term accounting for operational
accepted in practice, new approaches are needed that                         planning and control.
focus directly on mix optimization.124                                           3. The principal tools of cost management are the
0 . 6 9 I N T E G R AT I N G M A R G I N A L C O S T I N G                   ◆ Target costing,
I N TO   M A N AG E M E N T AC CO U N T I N G                                ◆ Concurrent costing,
1. To improve competitiveness and enable sustainable                         ◆ Life-cycle costing,
attainment of company goals, management accounting                           ◆ Process Costing/ABC,
must be involved in product development early on so                          ◆ Benchmark costing,
that it can shape product costs during the design                            ◆ Resource-driver-based assignments.
process, as called for in the extensive cost management                          Each of these techniques has a vast literature behind
literature.125 Realizing sustainability through life-cycle-                  it that cannot be discussed here.129 In the following, we
based product costing, eliminating nonvalue-adding                           will look at how the concepts of strategic cost manage-
processes, reducing the process volume, and avoiding                         ment can be integrated into cost accounting for plan-
over-dimensioned resources requires new cost manage-                         ning and control purposes. While integration would
ment tools. Cost management can be understood as a                           have organizational and efficiency advantages, it would
systematic approach to influencing the cost levels, cost                     also entail the risk of suboptimal appropriateness for
structure, cost behavior, and cost transparency of a sys-                    strategic analysis.130
tem of relationships among products, processes, and                              Target costing is a customer-centric method of opti-
resources.126 Of particular importance in cost manage-                       mizing costs, functionality, and quality while the product
ment is cost information on cross-functional aspects                         is being designed. If one follows the proposals in the
such as innovation, logistics, and quality. These process                    literature, one is soon faced with complex procedures
areas need to be defined, identified, and differentiated                     for determining the exact customer requirements.131
from each other,127 making it necessary to plan and                          Particularly problematic is the weighting of the multidi-
track costs across cost center boundaries. The structures                    mensional product requirements that are needed as a
of Process Costing/ABC are valuable in this regard.                          basis for setting target costs based on the ability to pay.
Individual activity/process amounts can, however, also                       For this reason, this tool is only practical on a case-by-
be costed using the methodology of Marginal Costing.                         case basis when the cost-volume can be influenced
   2. Cost management and management accounting                              accordingly, or in highly pragmatic simplification. Even

             M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   19   WINTER 2004, VOL. 5, NO. 2
the automotive industry often costs out a new model                        measures for cost assignments in cost accounting. In
using only the standard price class for that segment,                      principle, this should benefit cost accounting by pro-
deriving from it the maximum allowable production cost                     moting adherence to the causality principle and
as a lump sum and then roughly distributing the target                     improve transparency in support areas. But as part of
costs among the components based on the cost structure                     financial accounting, Process Costing/ABC should be
of the previous model.                                                     applied from an optimized and representationally sim-
   If cost accounting is to better support cost control                    plified process structure. Moreover, complex process
efforts in the early stages of product development, cost                   analyses should only serve an existing organizational
estimates are needed that do not use the costing basis                     design. Detailed costing of these processes serves main-
of Marginal Costing such as BOMs and routings                              ly to estimate cost reduction potential as a goal of reor-
(concurrent costing)132 and that include estimation                        ganization, and to do this must represent resource
methods that attempt to capture cost relationships                         consumption as absorption costing. Another important
through the establishment of neural networks with test                     component of process cost management is the continu-
data due to lack of previous analytical exposure.133 Fur-                  ous improvement of processes. And this is only partially
thermore, since all costs can be influenced to a greater                   attained by cost management of the processes as
or lesser extent during the early stages of product                        described above—it is mainly achieved by direct moni-
design, the long-term marginal costs coincide with the                     toring of critical process parameters. To enable dynamic
full costs. Initial indications as to how costs might be                   changes to the analysis and the determination of corre-
distributed can nevertheless be established at this                        sponding target parameters, both the half-life concept
point—for example, based on the planned machine                            and experience curves have been proposed, the latter of
usage. For this reason, it is worth preparing the basic                    which supports estimation of cost trends in future peri-
data at an early stage when the first rough estimates are                  ods.135 To the extent that process costs are used in
compiled so that as the product design is finalized these                  product cost estimates, a significant increase in mean-
estimates can be used later in cost estimates for flexible                 ingfulness, compared with assessment and overhead
standing costing.                                                          allocation, can usually be achieved by utilizing a few
   Life-cycle costing is a central source of information for               standardized processes and standard process cost rates
product cost management, helping to determine the                          in cost accounting.
efficiency of the general decision about the product and                      Benchmark costing, a particularly flexible procedure,
the integrated profit planning process that includes all                   is only worthwhile in specific cases where the levels of
pre- and post-production costs. It also serves as a control                total cost correspond. The point is to be able to com-
instrument, providing project cost accounting informa-                     pare the costs of an object—whether a product or a
tion throughout the entire production and marketing                        business process—with the costs of a similar object,
cycle. The focus is not on repeatedly calculating the                      which exhibits more efficiency. The chief advantage of
historical costs of the product but, rather, optimizing the                this type of comparison is that it helps allay reservations
remaining marketing and follow-up phases. Periodic                         about the fairness of cost targets. And since the data is
contribution margins are then used mainly for sales                        usually based on noncompetitors that are not fully com-
management and production planning. Decisions about                        parable, the precision of cost information is less impor-
the life cycle itself, however, should in principle be                     tant than identifying opportunities for increased
based on investment accounting, meaning that life-                         competitiveness through better business processes in
cycle cost accounting must also merge into life-cycle                      the company’s own industry.
calculations based on investment accounting.134                               Comprehensive resource-driver-based assignment
   The central focus of much scrutinizing in cost man-                     helps improve the exploitation of resource potential and
agement results from Process Costing/ABC discussed                         enhance capacity utilization.136 This type of resource-
above. Here it should suffice to note that this method-                    driver-based assignments initially provides information
ology entails a fundamental enhancement of the output                      about resource capabilities in order to support the opti-

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   20   WINTER 2004, VOL. 5, NO. 2
mum design of capacity. An important component is a                        costs and revenues as future discounted changes in pay-
key figure analysis, which measures effective capacity                     ment flows. While it may seem advisable to avoid mis-
utilization.137 Key figure analysis captures important                     understandings in practice by means of terminology that
planning data that also describes the avoidability of                      distinguishes calculations based on investment theory
resource costs. According to M. Layer, forecasting                         from conventional cost and revenue accounting, the
fixed costs—which is gaining in significance in cost                       requirements of benefit-based management accounting
planning—should be based on a dynamic investment                           have nevertheless recently prompted a resurgence of the
function, differentiate between avoidable and unavoid-                     idea of integrating investment accounting and cost
able costs, and be incorporated in a corresponding                         accounting. Investment accounting and cost accounting
authorized Marginal Costing system.138 Resource-                           are more closely related than is typically assumed. Since
driver-based assignments also indicate the possibilities                   investment budgets are not available, the incoming and
of capacity utilization for direct control purposes. At the                outgoing payment flows must be determined by means
same time, it improves the variance analysis functions                     of forecasts. Cost and revenue accounting and profitabil-
in cost center accounting.139                                              ity analysis provide a good starting point for this pur-
                                                                           pose, as they are based on concrete time and quantity
0 . 6 10 M A R G I N A L C O S T I N G     AS A                            standards. This is particularly the case when payment-
F O U N DAT I O N   FOR   VA L U E - B A S E D                             related/cash-flow performance data is available. This
M A N AG E M E N T AC CO U N T I N G                                       basic connection can be exploited more easily the better
1. A new challenge for management accounting is the                        cost accounting and investment accounting are integrat-
movement in many companies towards emphasizing                             ed, as is more and more frequently demanded.144
shareholder value140—whether the purpose is to better                         3. The task of value-based management accounting
account for the interests of investors or to protect com-                  is to analyze the strategies selected by the enterprise to
pany interests in the face of the increasing significance                  determine how these help create competitive advan-
of capital markets and their players in the evaluation of                  tages and consequently increase the value of the enter-
the performance of the company and whether it should                       prise. What is evaluated is the capability of the
continue to exist as an independent entity. Focusing on                    enterprise to develop, produce, use, and market its
the concepts of shareholder value further entrenches                       products—in the present and in the future. The valua-
the need for management accounting by means of the                         tion of the enterprise must therefore express its future
traditional external and internal periodic accounting                      potential value,145 represented by the methods of enter-
approach. The implementation of value-based manage-                        prise valuation, based on its earning power. The litera-
ment141 nevertheless requires integration into all of                      ture discusses different methods of defining such
accounting. On the one hand, data from internal                            suitable potential measures (e.g., earnings or various
accounting is needed in order to provide data for value-                   types of cash flow methods).146 For the integration of
based calculations, as is the case with investment                         internal profitability analysis and value-based profitabil-
accounting tools. On the other hand, the categories and                    ity management, we will only examine one particularly
drivers of value-enhancing strategies must be broken                       suitable discounted-cash-flow method.
down to the operational level and operationalized for                         Rappaport’s Shareholder Value Analysis (SVA)147 ele-
continuous monitoring. The parameters of Marginal                          vates the discounted free cash flow as the central per-
Costing and contribution margin accounting continue to                     formance criterion. Value creation starts with five value
be suitable for this purpose.                                              generators: sales growth rate, operating income margin,
   2. Küpper early on developed a proposal to base cost                    income tax rate, investments in net working capital and
accounting on investment theory142 and to replace the                      fixed assets, and the cost of capital.148 Only with this
categories of costs and revenues with discounted pay-                      breakdown does the DCF method become manageable
ments. Internal accounting information is by nature less                   and does it merge strategic and financial manage-
restricted.143 Consequently, it is admissible to interpret                 ment.149 The elements evaluated are strategic business

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   21   WINTER 2004, VOL. 5, NO. 2
units, synergy effects, product mix decisions, the perfor-                 –    Investments to fixed assets (less disinvestments)
mance of managers, and acquisitions.150 Shareholder                        –    Increase (less reduction) of working capital
value in Rappaport’s sense is the value of the enterprise                  –    Tax payments
less the fair market value of outside capital; the value of                =    Free cash flow
the enterprise is the sum of the present value of the
operating cash flow during the forecast period plus the                       A significant factor for obtaining value-oriented cal-
residual value and fair market value of its stock                          culations from profitability analysis154B is the diver-
exchange securities.151 The free cash flow (FCF) as                        gence or convergence between the values of the
the relevant part of the operational cash flow can be                      external and internal accounting systems. This is
defined as “that part of the incoming payment surplus                      because the increasing distance of the operating income
[...] resulting from the operational activities which is                   statement from the categories of expense and revenue
available for distribution to investors or for reinvest-                   (which more closely represent cash flows) makes the
ment after deducting the investments in fixed assets                       reconciliation more complicated or less able to provide
and net working capital and payment-related income                         meaningful information. This supports the argument for
taxes of the planning period.”152 The free cash flow is                    a greater convergence between external and internal
therefore the difference between the operational                           accounting. The latter is by no means a contradiction of
incoming and outgoing payments before interest on                          the principles of cost accounting to plan the costs and
outside capital and after taxes and net investment to                      revenues of future periods on the basis of the forecast
fixed assets and working capital. Both the cash flows                      time and quantity standards. The accuracy should be
and the residual value are to be discounted to the pres-                   acceptable compared with other methods utilized for
ent value for the planning time frame.                                     investment accounting purposes. In an immediate esti-
    4. Although the future benefit of the free cash flow                   mation of payment flows, the detailed questions of
may be convincing to a potential investor for value                        financing (such as the exact day on which a large
determination, it is difficult to calculate. In order to                   invoice will be paid) are those we are least able to pre-
reach a reasonably reliable valuation, it is essential to                  dict, while factors such as energy consumption can be
back up the forecast of the payment flows with appro-                      foreseen with relative accuracy provided the production
priate instruments. Suitably sophisticated financial bud-                  and sales forecasts hold true. The period results deter-
gets that may be available are more of an exception                        mined by cost accounting can then be converted to cash
here. As a rule, therefore, the required cash-flow infor-                  flows and discounted using the DCF method.
mation must be derived specifically for individual situa-
tions. The detailed determination of cash flows requires                   0.7 MARGINAL COSTING                AS THE    NUCLEUS
improved capture of the activity dependencies in quan-                     OF   M A N AG E M E N T AC CO U N T I N G
tities, times, and qualities.153 Estimation of the cash                    In conclusion, cost accounting on the basis of Marginal
flow forces the planning of concrete resources, capaci-                    Costing supplemented by process-centric methods of
ties, processes, and products in the same way as is                        cost accounting and embedded in a sophisticated con-
required in Marginal Costing.                                              tribution margin accounting system forms the core ele-
    The literature proposes deriving the required free                     ment of management accounting. Only by linking the
cash flow from the internal operating result.154 For this                  categories of decision-based standard costing with time
purpose, the operating result is determined as follows:                    and quantity standards can company performance be
Operating result                                                           planned and controlled. Moreover, the information basis
+   Depreciation stated in operating result                                that this creates builds the foundation for operational
+   Cost of capital stated in operating result                             investment accounting and benefit-based calculations.
+   (if applicable) other imputed costs in operating result                   Marginal Costing remains indispensable, and the
+   Increase (less write-off) of longer-term reserves                      reporting system for flexible standard costing and con-
=   Gross cash flow                                                        tribution margin accounting developed by Kilger is still

           M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   22   WINTER 2004, VOL. 5, NO. 2
                                                                                    Cost Accounting?], 1998.
up-to-date. Consequently, we can conclude this intro-
                                                                               12   J. Weber, Entfeinerung der Kostenrechnung [Simplification of
duction with the same words as in the last edition edit-                            Cost Accounting], 1992, pp. 176–179; W. Männel, Schlanke
ed by W. Kilger: “This book describes the development                               Konzepte und Methoden [Lean Concepts and Methods], 1995,
                                                                                    pp. 194–195.
of cost accounting starting with the various designs of                        13   J. Weber, Change Management für die Kostenrechnung [Change
actual costing and normal costing and finally leading to                            Management for Cost Accounting], 1990, pp. 122–124; J.
                                                                                    Weber, Entfeinerung der Kostenrechnung [Simplification of Cost
Marginal Costing and Contribution Margin Accounting.
                                                                                    Accounting], 1992, pp. 179–182; J. Weber, Selektives Rech-
The costing theory on which this procedure is based                                 nungswesen [Selective Accounting], 1996, p. 928 f.; H-U. Küp-
will then be presented. The remaining parts of the                                  per, Marktwertorientierung [Market Value Orientation], 1998,
                                                                                    pp. 533–536.
book are a theoretically grounded and practice-oriented                        14   W. Männel, Schlanke Konzepte und Methoden [Lean Concepts
presentation of flexible standard costing as developed                              and Methods], 1995, p. 192.
                                                                               15   While the German literature usually first discusses the range
into Marginal Costing and Contribution Margin
                                                                                    of cost accounting purposes and then selects the most appro-
Accounting.”155 ■                                                                   priate cost accounting system for all purposes, in the U.S.
                                                                                    literature the description of cost accounting is strongly influ-
                                                                                    enced by the different purposes. This is particularly the case
F O OT N OT E S                                                                     in C. T. Horngren, G. L. Sundem, W. O. Stratton, Introduc-
1    Translator note: Wolfgang Kilger, Jochen Pampel, and Kurt                      tion to Management Accounting, 1999.
     Vikas, Flexible Plankostenrechnung und Deckungsbeitragsrechnung,          16   See, for example, K. Cross, R. Lynch, Accounting for Competi-
     11th edition, Wiesbaden: Gabler, 2002.                                         tive Performance, 1989, pp. 20–28; I. Lessner, Performance
2    For an introduction to the development and state of the art                    Measurement, 1989, pp. 22–28; R. S. Kaplan, Limitations of Cost
     of Marginal Costing, see K. Vikas, Grenzplankostenrechnung                     Accounting, 1990, pp. 15–38. On this estimation, cf. N. Klinge-
     [Marginal Costing], 2002.                                                      biel, Leistungsrechnung/Performance Measurement, 1996, p. 79.
2B Translator note: The term “authorized” (as in authorized                    17   For an overview, see J. G. Birnberg, Current Trends in Behav-
     costs or authorized profit) is used to translate the German                    ioral Accounting Research, 1993, pp. 5–25.
     term “soll-.” “Sollkosten” in GPK reflects target or allowed              18   See D. Pfaff, Fix- und Gemeinkostenallokationen im Lichte der
     costs that are calculated for all departments (direct and indi-                ökonomischen Theorie [Allocation of Fixed Costs and Overhead
     rect) based on actual output levels for comparison with actual                 in the Light of Economic Theory], 1994, pp. 185 ff.
     costs incurred. In U.S. vernacular, a flex-budget; “sol-                  19   The phenomenon that practice goes against the recommen-
     lkosten,” however, is calculated using GPK’s sophisticated                     dations of theory and always makes decisions on the basis of
     cost modeling technique.                                                       full costs as well is described by H. Wiese as the
3    Translator note: in German-speaking Europe.                                    “theory/practice paradox of cost accounting,” which can be
4    The coordination function of cost management is particularly                   explained with decision theory analysis; see S. Wiese,
     emphasized in H.U. Küpper, Controlling [Management                             Theorie-Praxis-Paradox der Kostenrechnung [The Theory/
     Accounting], 2001, pp. 13–29.                                                  Practice Paradox of Cost Accounting], 1994, p. 525.
5    For details, cf. D. Hahn, Controlling in Deutschland [Manage-             20   See J. P. Krahnen, Kostenschlüsselung und Investitionsentschei-
     ment Accounting in Germany], 1997, pp. 16 ff.                                  dung [Cost Assignments and Investment Decisions], 1994,
6    Cf. J. Weber, Einführung in das Controlling [Introduction to                   p. 190 f.
     Management Accounting], 1995, p. 49.                                      21   W. Männel, Anpassung der Kostenrechnung [Adaptation of Cost
7    For more on this distinction, see P. Horváth, Controlling                      Accounting], 1992, p. 115 f.
     [Management Accounting], 1996, pp. 117 ff.                                22   J. Weber, Selektives Rechnungswesen [Selective Accounting],
8    See also A. Klein, K. Vikas, Überblick über das prozessorientierte             1996, p. 929.
     Controlling [Overview of Process-Oriented Management                      23   See J. G. Miller, T. E. Vollmann, The Hidden Factory, 1985,
     Accounting], 1999, p. 83 f.                                                    pp. 143–146.
9    J. Weber, Change Management für die Kostenrechnung [Change                24   Cf. H. T. Johnson, R. S. Kaplan, Relevance Lost, 1987,
     Management for Cost Accounting], 1990, p. 121 f.                               pp. 125–151.
10 Translator note: The terms Marginal Costing, Standard Costing,              25   Cf. H. T. Johnson, R. S. Kaplan, Relevance Lost, 1987, p. 250.
     Flexible Standard Costing, and/or Contribution Margin Account-            26   For information on the method described here of costing
     ing are used to refer to GPK/Grenzplankostenrechnung, an                       operations in indirect areas and in the service sector, see
     advanced form of Standard Costing predicated on extensive                      K. Vikas, Dienstleistungskalkulation [Service Costing], 2001,
     use of resource drivers in direct and indirect cost areas.                     p. 193 ff.
11    J. Weber, Change Management für die Kostenrechnung [Change               27   Translator note: Process Costing is used to distinguish German
     Management for Cost Accounting], 1990, J. Weber, Ent-                          Prozesskosternrechnung—an approach similar to ABC—from
     feinerung der Kostenrechnung [Simplification of Cost Account-                  ABC as practiced in the USA, which will be designated as
     ing], 1992; J. Weber, Kostenrechnung im System der                             ABC. The term Process Costing/ABC will be used when
     Unternehmensführung [Cost Accounting in the System of                          both methods are implied.
     Enterprise Management], 1993; J. Weber, Selektives Rech-                  28   For more on the requirements of group cost accounting, see
     nungswesen [Selective Accounting], 1996; W. Männel, Schlanke                   H. Müller, Operative Unternehmenssteuerung global agierender
     Konzepte und Methoden [Lean Concepts and Methods], 1995;                       Unternehmen und Konzerne [Operative Management of Global
     and D. Pfaff, J. Weber, Zweck der Kostenrechnung? [Purpose of                  Companies and Groups], 1999, pp. 384-421394; K. Küting,

              M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY    23   WINTER 2004, VOL. 5, NO. 2
     M. Dusemond, Konzernkostenrechnung [Group Costing], 1994,                   mance Measures, 1995-1996, p. 54.
     pp. 245–251.                                                           44   See M. Günther, J. R. Pampel, Implementierung eines Konzepts
29   See H. Müller, Anforderungen an das interne Rechungswesen für               zur Kapazitätsrechnung [Implementing a Concept of Capacity
     die operative Unternehmenssteuerung global agierender                       Accounting], 2000, pp. 300-306.
     Unternehmen und Konzerne [Requirements on Internal                     45   See, for example, J. Hoffecker, C. Goldenberg, Using the Bal-
     Accounting for the Operative Management of Global                           anced Scorecard to Develop Companywide Performance Measures,
     Companies and Groups], 1999, pp. 394-396; K. Küting,                        1994, pp. 5–17.
     M. Dusemond, Konzernkostenrechnung [Group Costing], 1994,              46   Cf. R. S. Kaplan, D. P. Norton, The Balanced Scorecard, 1996,
     pp. 245–251.                                                                p. 8.
30   Cf. N. Klingebiel, Leistungsrechnung/Performance Measurement,          47   Cf. R. S. Kaplan, D. P. Norton, The Balanced Scorecard, 1996,
     1996, p. 77.                                                                p. 43 ff.
31   Thus “modern” performance measurement cannot simply                    48   See W. Männel, Entwicklungsperspektiven der Kostenrechnung
     be equated with performance measurement based on the                        [Development Perspectives of Cost Accounting], 1999, p. 96.
     output of goods and services, as suggested by N. Klingebiel,           49   Cf. Foster, G., Gupta, M., Sjoblom, L., Customer Profitability
     Leistungsrechnung/Performance Measurement, 1996, for example                Analysis, 1996, p. 5 f.
     (especially p. 81), even though it appears there as a result of        50   On the requirements, see Haag, J, Kundendeckungsbeitragsrech-
     a sequence of development steps. See ibidem, p. 79. In the                  nungen [Customer Contribution Margin Accounting], 1992,
     practical literature, the use of nonfinancial measures is still             p. 25 ff.
     regarded as an innovation; J. Fisher, Use of Nonfinancial Per-         51   See R. Fischer, M. Rogalski, Preispolitik auf Grundlage eines
     formance Measures, 1994, p. 31. On the theoretical basis of                 entscheidungsorientierten Kosten- und Erlöscontrolling [Price Poli-
     Performance Measurements, see also R. Gleich, Das System                    cy on the Basis of Decision-Oriented Management Account-
     des Performance Measurement [The System of Performance                      ing], 1993a, pp. 240–249.
     Measurement], 2001, pp. 21-43, and, for an overview, see R.            52   Cf. K. Kornagel, Preispolitik auf Grundlage eines entscheidung-
     Gleich, Performance Measurement als Controllinginstrument [Per-             sorientierten Kosten- und Erlöscontrolling [Price Policy on the
     formance Measurement as a Management Accounting Tool],                      Basis of Decision-Based Management Accounting], 1993,
     2001, pp. 47–49.                                                            pp. 917–920; R. Fischer, M. Rogalski, Preispolitik auf Grund-
32   See, for example, K. Cross, R. Lynch, Accounting for Competi-               lage eines entscheidungsorientierten Kosten- und Erlöscontrolling
     tive Performance, 1989, pp. 20–28, or J. Lessner, Performance               [Price Policy on the Basis of Decision-Based Management
     Measurement, pp. 22–28. On this assessment, cf. also N.                     Accounting], 1993b.
     Klingebiel, Leistungsrechnung/Performance Measurement, 1996,           53   For a good example of a practical application, see A. Jerger,
     p. 79.                                                                      Marktorientierte Ergebnisrechnung [Market-Based Profitability
33   See W. J. Bruns, Jr., S. M. McKinnon, Performance Evaluation                Analysis], 1995, pp. 107–114. For a more comprehensive
     and Managers Description of Tasks and Activities, 1992,                     treatment, see E. Herzog, K. Zehetner, Prozessorientiertes
     pp. 17–36.                                                                  Controlling des Vertriebs [Process-Oriented Management
34   See C. Meyer, How the Right Measures Help Teams Excel, 1994,                Accounting in Sales and Distribution], 1999, pp. 288–293.
     pp. 95–103.                                                            54   For an example, see K.P. Franz, Die Prozesskostenrechnung
35   See K. J. Murphy, Performance Measurement and Appraisal,                    [Process Costing], 1990, p. 134 and K.P. Franz, Die
     1992, pp. 37–62.                                                            Prozesskostenrechnung im Vergleich mit der Grenzplankosten- und
36   See, for example, A. J. Nanni, Jr., J. R. Dixon, T. E. Voll-                Deckungsbeitragsrechnung [Process Costing vs. Marginal Cost-
     mann, Strategic Control and Performance Measurement, 1990,                  ing and Contribution Margin Accounting], 1990, p. 195–209.
     issue 2, pp. 33-42.                                                         See also H.C. Pfohl, W. Stölzle, Anwendungsbedingungen, Ver-
37   H. T. Johnson, R. S. Kaplan, Relevance Lost, 1987.                          fahren und Beurteilung der Prozesskostenrechnung in industriellen
38   Johnson emphasizes this point as well: “Traditional cost                    Unternehmen [Application Requirements, Methods, and
     accounting systems impede performance because traditional                   Assessment of Process Costing in Industrial Enterprises],
     cost accounting data do not track sources of competitiveness                1991, p. 1298 f.; H. Müller, Prozesskostenrechnung [Process
     such as quality, flexibility, dependability, and service in the             Costing], 1992, p. 70 f.; O. Fröhling, Thesen zur Prozesskosten-
     global economy.”; T. H. Johnson, Performance Measurement for                rechnung [Theses on Process Costing], 1992, p. 723 ff.; U.
     Competitive Excellence, 1990, p. 63.                                        Götze, J. C. Meyerhoff, Die Prozesskostenrechnung [Process
39   R. S. Kaplan, Limitations of Cost Accounting, 1990, p. 18 f.                Costing], 1993, p. 84 ff.; and P. Horváth, M. Kieninger, R.
40   R. S. Kaplan, Limitations of Cost Accounting, 1990, p. 20 f.                Mayer, C. Schimank, Prozesskostenrechnung — oder wie die
41   R. S. Kaplan, Limitations of Cost Accounting, 1990, p. 21 f.                Praxis die Theorie überholt [Process Costing — Or How Prac-
     D. G. Dhavale’s criticism is similar: “Financial performance                tice Is Overtaking Theory]. Kritik und Gegenkritik [Criticism
     measures inappropriate at operations level. Many perfor-                    and Counter Criticism], 1993, pp. 617–623.
     mance measurement systems use financial measurements                   55   This also corresponds more to the fact that Process Costing/
     that are too abstract because they are too hard to relate to                ABC in the United States stems from a new (additional) ori-
     activities taking place on the shop floor. Financial measure-               entation of cost accounting; on this origin see R. S. Kaplan,
     ments often fail to provide information that is useful for                  One Cost System Isn’t Enough, 1988, pp. 61–66. A similarly
     decision making”; D. G. Dhavale, Problems with Existing                     sophisticated assessment regarding the suitability of Process
     Manufacturing Performance Measures, 1995-1996, p. 50. For a                 Costing for planning in the context of different time horizons
     similar list of deficiencies as those by Kaplan mentioned                   and general conditions is arrived at by U. Schiller, S. Lengs-
     above, see ibidem, pp. 50–52.                                               feld, Planung mit Prozesskostenrechnung [Planning with Process
42   Translator note: referring to U.S. standard costing.                        Costing], 1998, p. 525.
43   D. G. Dhavale, Problems with Existing Manufacturing Perfor-            56   See the argument for Activity-Based Costing by P. F. Druck-

            M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   24   WINTER 2004, VOL. 5, NO. 2
    er, The Information Executives Truly Need, 1995, passim, and                 sen von Gemeinkostenprozessen zur Herleitung eines branchenspezi-
    the contribution of ABC Management Accounting by R. S.                       fischen Prozess(kosten-)modells [Empirical Analyses of Over-
    Kaplan, Das neue Rollenverständnis für den Controller [The                   head Cost Processes to Derive an Industry-Specific Process
    New Role of the Management Accountant], 1995, pp. 60–70.                     Costing Model], 1999, pp. 76–89; C. Homburg, K. Zirnmer,
57 See K. Backhaus, S. Funke, Auf dem Weg zur fixkostenintensiven                Optimale Auswahl von Kostentreibern in der Prozesskostenrechnung
    Unternehmung [On the Way to the Fixed-Cost-Intensive                         [Optimum Selection of Cost Drivers in Process Costing],
    Enterprise], 1996, pp. 109–124; S. Funke, Eignung der Vol-                   1999, pp. 1042–1055.
    lkostenrechnung für die Zwecke der Kosten- und Leistungsrechnung         70 Horváth/Mayer differentiate among advance processes
    bei hohen Fixkostenanteilen [The Suitability of Absorption                   (administrative planning activities in the product develop-
    Costing for Cost Accounting with High Fixed Costs], 1994,                    ment phase), service activities (activities that are always
    p. 324. This view even holds when empirical research in                      required for any product, part, supplier, or customer), and
    recent years shows that no serious increase in fixed costs has               fulfillment processes (all logistical and administrative activi-
    taken place; for an example of such research, see M. Schu-                   ties needed to procure materials and parts, produce parts,
    mann, M. Beinhauer, Empirische Analysen zur Kostenentwick-                   assemblies and products, and process sales orders); see P.
    lung des administrativen Bereichs [Empirical Analysis of Cost                Horváth, R. Mayer, Prozesskostenrechnung [Process Costing],
    Trends in Administration], 1994, pp. 297–305.                                1993, p. 18.
58 For a comprehensive treatment, see A. Ripperger, A Zwirner,               71 Translator note: in Process Costing.
    Prozessoptimierung. Ein Weg zur Steigerung der Wettbewerbs-              72 Cf. W. Männel, Entwicklungslinien der Kostenrechnung [Devel-
    fähigkeit [Process Optimization: A Method of Enhancing                       opment Directions in Cost Accounting], 1999, p. 134 f.
    Competitiveness], 1995, pp. 72–80, and S. Niemand, M.                    73 For examples of such approaches, see W. W. Hubbell, Com-
    Fröhlich, Prozesskostenrechnung als Instrument zur Organisation-             bining Economic Value Added and Activity-Based Management,
    sgestaltung [Process Costing as an Organizational Tool], 1994,               1996, pp. 18–29; M. R. Ostrenga, F. R. Probst, Process Value
    pp. 267–276.                                                                 Analysis, 1992, pp. 4–13.
59 Translator note: a cross-functional view.                                 74 This approach, originally introduced into Process Costing by
59B Translator note: In this list consider “process” and “activity”              P. Horváth and R. Mayer in Germany, to break down
    to be synonymous.                                                            processes (measures) into output-volume-neutral and output-
60 On the use of resource drivers in different costing systems,                  volume-related process costs (P. Horváth, R. Mayer,
    see J. R. Pampel, Bezugsgrößen [Resource Drivers], 2002.                     Prozesskostenrechnung [Process Costing], 1989, p. 216 f.) was
61 Vikas calls this procedure “Vorgangskalkulation” (transaction                 soon applied to the costs themselves in the discussion,
    costing); see K. Vikas, Controlling im Dienstleistungsbereich mit            resulting in practice being used in different ways.
    Grenzplankostenrechnung [Management Accounting in the Ser-               74B This approach in German Process Costing differs from the
    vice Sector with Marginal Costing], 1988, pp. 147 ff.                        typical approach in ABC, particularly earlier applications of
62 Adherents consequently emphasize that Marginal Costing is                     ABC.
    process conforming because of the assignment of costs                    75 On this classification of the allocation levels, understood as a
    through performance-based drivers. This is particularly clear                hierarchy of the allocatability of processes to products, see R.
    in H. Müller, Prozesskonforme Plankostenrechnung [Process-                   Cooper, R. S. Kaplan, L. S. Maisel, E. Morissey, R. M.
    Conforming Standard Costing/GPK], 1995. Adherents of                         Oehrn, Implementing Activity-Based Cost Management, 1992, p. 20.
    Marginal Costing who are active in consulting practice in the            76 Cf. P. Horváth, R. Mayer, Prozesskostenrechnung [Process Cost-
    Plaut Group, in particular, therefore see Marginal Costing                   ing], 1993, p. 24.
    interpreted and implemented in this sense as a tool of “mod-             77 Cf. H. Glaser, Prozesskostenrechnung als Kontroll- und Entschei-
    ern cost management”; see also the collection of different                   dungsinstrument [Process Costing as a Control and Decision
    contributions of the Plaut Group in W. Männel, H. Müller,                    Tool], 1991, p. 238, and H. Glaser, Zur Bedeutung der
    Modernes Kostenmanagement [Modern Cost Management],                          Prozesskostenrechnung [On the Significance of Process Cost-
    1995, pp. 91–162.                                                            ing], 1991, p. 301. H. Glaser also developed general consider-
63 See R. Cooper, Activity-Based Costing, 1992, p. 361.                          ations for capturing cost distortions in process-oriented
64 P. Horváth, R. Mayer, Prozesskostenrechnung [Process Costing],                costing; cf. H. Glaser, Prozesskostenrechnung und Kahkulations-
    1993, p. 18.                                                                 genauigkeit [Process Costing and Costing Accuracy], 1996,
65 Cf. R. Cooper, Activity-Based Costing, 1992, p. 361.                          pp. 28–34.
66 Cf. G. Foster, M. Gupta, Activity Accounting: An Electronics              78 Cf. W. Männel, Bedeutung der Prozesskostenrechnung [Signifi-
    Industry Implementation, 1990, p. 246.                                       cance of Process Costing], 1993, p. 3.
67 Cf. A. Renner, Kostenorientierte Produktionssteuerung [Cost-              79 Ultimately, a cost estimate is just a heuristic approach. See
    Oriented Production Control], 1991, p. 107.                                  R. Gümpel, Kalkulationsverfahren und Beschaftigung [Costing
68 M. Reckenfelderbäumer, Entwicklungsstand und Perspektiven                     Methods and Operating Level], 1981, p. 865.
    der Prozesskostenrechnung [Development Status and Perspec-               80 The assertion that “Process Costing is capable of charging
    tives of Process Costing], 1994, p. 63.                                      the cost objects with the running costs of capital caused by
69 See A. G. Coenenberg, T. M. Fischer, Prozesskostenrechnung                    them” (C. Schneeweiss, J. Steinbach, Zur Beurteilung der
    [Process Costing], 1991, p. 26. Models are already being                     Prozesskostenrechnung als Planungsinstrument [On Assessing
    developed in the literature that are designed to help opti-                  Process Costing as a Planning Tool], 1996, p. 471) either
    mize the selection of cost drivers; cf. Y. M. Babad, B. V. Bal-              ignores the problems of attributing causality or reinterprets
    achandran, Cost Driver Optimization in Activity-Based Costing,               the causality principle, which is regarded here as inadvisable.
    1993, pp. 583–575; R. Mayer, L. Kaufmann, Prozesskostenrech-             81 Kloock/Dierkes differentiate systematically between the
    nung [Process Costing], 2000, pp. 298–301. On empirical                      “used capacity principle,” which allows the allocation of
    research, see also A. Brokemper, R. Gleich, Empirische Analy-                fixed output-volume-related costs to processes, from the

             M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   25    WINTER 2004, VOL. 5, NO. 2
     causality principle, which restricts allocation to variable out-             capacity category had been considered earlier in M. R.
     put-volume-related costs; cf. J. Kloock, S. Dierkes, Kostenkon-              Ostrenga, Identifying Your Excess Capacity Costs, 1988, p. 40.
     trolle mit der Prozesskostenrechnung [Cost Control with Process              The identification of the costs of “used and unused capaci-
     Costing], 1996, p. 108.                                                      ty” is treated in U.S. textbooks; cf. C. T. Horngren, G. Fos-
82   R.S. Kaplan, R. Cooper, Cost & Effect, 1998, p. 125.                         ter, S. M. Datar, Cost Accounting, 1994, pp. 544–546.
83   On this classification, see D. Börner, Kostenverteilung [Cost           92 Other methods of utilization control are proposed as well.
     Distribution], 1993, p. 1287.                                                See, for example, R. Brühl, Prozesskostenrechnung als Grund-
84   D. Schneider, Kostentheorie und verursachungsgemäße Kostenrech-              lage der Kostenkontrolle [Process Costing as a Basis for Cost
     nung [Cost Theory and Causality-Based Cost Allocation],                      Control], 1995, p. 77 f.
     1961, p. 694. K.P. Franz refers to allocation based on used             93 Other methods of utilization control are proposed as well.
     capacity and not just on causality; cf. K.P. Franz, Kostenverur-             See, for example, ibidem p. 77. For a similar method with a
     sachung und Kostenzurechnung [Cost Causality and Cost Alloca-                formulaic representation of cost element specific “capacity
     tion], 1993, p. 1287.                                                        cost price variances,” see J. Kloock, S. Dierkes, Kostenkon-
85   The causality principle of traditional absorption costing was                trolle mit der Prozesskostenrechnung [Cost Control with Process
     initially criticized, and a search was initiated for more exact              Costing], 1996, pp. 108–112. Kloock/Dierkes correctly ana-
     principles in support of decision-oriented cost accounting                   lyze only partial process costs based on cost centers, while
     (see, for example, K. Rummel, Einheitliche Kostenrechnung                    Brühl is vague on this point.
     [Unified Cost Accounting], 1949, passim and esp. pp. 15–59              94 One sees again and again that Activity-Based Costing starts
     and 192–216.; R. Ehrt, Die Zurechenbarkeit von Kosten auf Leis-              out as a model and that the practical design (particularly the
     tungen [The Attribution of Costs to Output], 1967, esp.                      sophistication) follows from the requirements of the individ-
     pp. 5–7.; P. Riebel, Die Fragwürdigkeit des Verursachung-                    ual case; for clarification, refer again to R. S. Kaplan, Das neue
     sprinzips [The Doubtfulness of the Causality Principle],                     Rollenverständnis für die Controller [The New Role of the
     1969/1990, pp. 67–75). Soon, however, efforts were made to                   Management Accountant], 1995, p. 66.
     work out a theoretical basis and develop more advanced cost             95 On the latter, cf. R. Brühl, Prozesskostenrechnung als Grundlage
     assignment (such as for production overhead), which led to                   der Kostenkontrolle [Process Costing as a Basis for Cost Con-
     the formulation of the above allocation principles (see, for                 trol], 1995, p. 78.
     example, D. Schneider, Kostentheorie und verursachungsgemäße            96 Translator note: as opposed to resource usage.
     Kostenrechnung [Cost Theory and Causality-Based Cost                    97 In contrast, the tendency in German Process Costing to allo-
     Accounting], 1961, esp. pp. 683–699; H. Koch, 1965, esp.                     cate costs based on the actual process volume and thus to
     pp. 181–194).                                                                cost oneself out of the market (in the classic absorption cost-
86   That which caused P. Riebel to reject this allocation                        ing approach) is problematic.
     approach based on the finality principle (cf. P. Riebel, Die            98 Cf. W. Lücke, Probleme der quantitativen Kapazität in der
     Fragwürdigkeit des Verursachungsprinzips [Doubtfulness of the                industriellen Erzeugung [Problems of Quantitative Capacity in
     Causality Principle], 1969/1990, p. 74 f.) is raised by H. Koch              Industrial Production], 1965, p. 368 f.
     to the principle of the determination of output-correspond-             99 Cf. M. Währisch, Kostenrechnungspraxis in der deutschen Industrie
     ing total cost share numbers (the “output correspondence                     [Cost Accounting Practice in German Industry], 1998, p. 91 f.
     principle”); see H. Koch, Das Prinzip der traditionellen Stück-         100 For an overview, see M. Währisch, Kostenrechnungspraxis in
     kostenrechnung [The Principle of Traditional Unit Costing],                  der deutschen Industrie [Cost Accounting Practice in German
     1965, p. 331 ff.                                                             Industry], 1998, p. 20.
87   Italics in the original, D. Schneider, Kostentheorie und verur-         101 Cf. M. Währisch, Kostenrechnungspraxis in der deutschen Industrie
     sachungsgemäße Kostenrechnung [Cost Theory and Causality-                    [Cost Accounting Practice in German Industry], 1998, p. 92 f.
     Based Cost Allocation], 1961, p. 693.                                   101B Benefit-based refers to practices in German cost accounting
88   Using a process-costing company model, Schneeweiß/Stein-                     to impute certain costs—cost depreciation (replacement
     bach systematically investigate Process Costing as an approx-                value divided by the assest’s economic life) and interest on
     imating planning accounting approach for the capacity as                     working capital and fixed assets—to reflect, for example,
     well, based on different variability assumptions; cf. C.                     target returns/earnings in individual margins.
     Schneeweiss, J. Steinbach, Zur Beurteilung der Prozesskosten-           102 Beyond this, C. Schneeweiß shows that the benefit-based
     rechnung als Planungsinstrument [Assessing Process Costing as                and decision-based cost concepts are in a complementary
     a Planning Tool], 1996, p. 462 ff. On corresponding methods                  relationship, whereby the former is on a formal level regard-
     that have been at least partially realized in practice, see R.               ing the decisions to be made; cf. C. Schneeweiß, Kostenbe-
     Hardt, Zielsteuerung und Kapazitätsplanung mit Hilfe der                     griffe aus entscheidungstheoretischer Sicht [Cost Concepts from
     Prozesskostenrechnung [Target Control and Capacity Planning                  the Perspective of Decision Theory], 1993, pp. 1031–1039.
     Using Process Costing], 1995, esp. p. 294.                              103 For a comprehensive treatment, see W. Männel, H. Distler,
89   C. J. McNair, The Hidden Costs of Capacity, 1994, p. 24.                     Substanzerhaltung durch kalkulatorische Abschreibungen und
90   Cf. R. Cooper, R.S. Kaplan, Activity-Based Systems, 1992, p. 3.              kalkulatorische Gewinnbestandteile [Asset Value Maintenance
     Later R. S. Kaplan and R. Cooper named the equation Cost                     Through Costing-Based Depreciation and Costing-Based
     of Resources Supplied = Cost of Resources Used + Cost of                     Profit Elements], 1997, pp. 43–54; F. Reiners, Bemessung
     Unused Capacity as “fundamental equation”; R. S. Kaplan,                     kalkulatorischer Abschreibungen, Zinsen und Gewinne vor dem
     R. Cooper, Cost & Effect, 1998, S. 117 f.                                    Hintergrund des Unternehmenserhaltungszieles [Measuring
91   Cf. R. S. Kaplan, R. Cooper, Cost & Effect, 1998, p. 117 f., and             Costing-Based Depreciation, Interest, and Profit Against the
     R. S. Kaplan, Das neue Rollenverständnis für die Controller [The             Background of the Goal of Sustaining the Company], 2000,
     New Role of the Management Accountant], 1995, p. 66. The                     pp. 98–304. On the practical problems, see J. Pampel, M.
     determination of “excess capacity costs” using the right                     Viertelhaus, Substanzerhaltung und kalkulatorische Abschreibun-

             M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY   26    WINTER 2004, VOL. 5, NO. 2
      gen in der Praxis [Asset Value Maintenance and Costing-                          [Cost Accounting in the System of Enterprise Management],
      Based Depreciation in Practice], 1997, pp. 14–23. These con-                     1993, p. 65.
      cepts remain controversial, however, as demonstrated above                 115   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-
      all by the continued use of costing-based cost components.                       nung [Lean Methods and Concepts of Cost Accounting],
      Ultimately, the different viewpoints can be traced back to                       1995, p. 194.
      different emphases and interpretations of the purposes of                  116   On this development, see E. Herzog, W. Jurasek, Vertriebscon-
      cost accounting. For an overview of the spectrum of opinion,                     trolling im System der Grenzplankostenrechnung [Sales Account-
      see R. Diedrich, Tageswert- und anschaffungswertorientierte                      ing in the System of Marginal Costing], 1993, pp. 288–293.
      Preiskalkulation im Spiegel der Meinungen [Opinions on Cur-                117   Cf. J. Weber, Kostenrechnung im System der Unternehmensführung
      rent-Value and Procurement-Value-Oriented Pricing], krp                          [Cost Accounting in the System of Enterprise Management],
      1997, Sonderheft 1/97, pp. 63–65.                                                1993, p. 66.
104   On the implementation of integrated accounting systems in                  118   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-
      smaller companies, see W. Männel, Entwicklungsperspektiven                       nung [Lean Methods and Concepts of Cost Accounting],
      der Kostenrechnung [Development Perspectives of Cost                             1995, p. 196 f.
      Accounting], 1999, pp. 11–12. On foregoing a separate cost                 119   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-
      accounting system in a large company such as Siemens AG,                         nung [Lean Methods and Concepts of Cost Accounting],
      see H. Ziegler, Neuorientierung des internen Rechnungswesens                     1995, p. 196.
      [Reorientation of Internal Accounting], 1994, p. 177 ff. H.U.              120   See J. Weber, Kostenrechnung im System der
      Küpper points out that in a more unified accounting system,                      Unternehmensführung [Cost Accounting in the System of
      accounting becomes a critical link; cf. H.-U. Küpper, Bedeu-                     Enterprise Management], 1993, p. 64.
      tung der Buchhaltung für Planungs- und Steuerungszwecke der                121   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-
      Untemehmung [Significance of Accounting in Enterprise Plan-                      nung [Lean Methods and Concepts of Cost Accounting],
      ning and Control], 1999, p. 455. On the higher integration                       1995, p. 197.
      stemming from statutory requirements, particularly in Aus-                 122   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-
      tria, see A. Egger, Gestaltung eines integrierten zukunftsbezogenen              nung [Lean Methods and Concepts of Cost Accounting],
      Rechnungswesen [Designing an Advanced Integrated Account-                        1995.
      ing System], 1999, p. 425.                                                 123   Cf. P. Recht, S. Zeisel, Unterstützung von verbundorientierten
105   Cf. W. Männel, Harmonisierung des Rechnungswesens [Harmo-                        Sortimentsentscheidungen durch eine Sortimentserfolgsrechnung
      nization of Accounting], 1999, pp. 17–26.                                        [Support of Affiliation-Based Product Mix Decisions
106   See H.U. Küpper, Integration der Unternehmensrechnung [Inte-                     Through Product Mix Profitability Analysis], 1998, p. 463.
      gration of Management Accounting], 1999, p. l0 f.; Dirrigl,                124   On this consideration, see P. Recht, S. Zeisel, Unterstützung
      H., Wertorientierung und Konvergenz in der Unternehmensrechnung                  von verbundorientierten Sortimentsentscheidungen durch eine Sorti-
      [Value Orientation and Convergence in Management                                 mentserfolgsrechnung [Support of Affiliation-Based Product
      Accounting], 1998, p. 544; and, more skeptically, K. Küting,                     Mix Decisions Through Product Mix Profitability Analysis],
      P. Lorson, Harmonisierung des Rechnungswesens [Harmonization                     1998, pp. 464–471.
      of Accounting], 1999, p. 56 f.                                             125   For an overview, see A. Amaout, S. Niemand, S. v.
107   W. Männel, Harmonisierung des Rechnungswesens [Harmoniza-                        Wangenheim, Kostenmanagement [Cost Management], 1997,
      tion of Accounting], 1999, p. 15; G. A. Klein, Konvergenz von                    pp. 161–200.
      internationalem und externem Rechnungswesen [Convergence of                126   See M. Reiss, H. Corsten, Gestaltungsdomänen des Kostenman-
      International and External Accounting], 1999, p. 67; E. Low,                     agements [Design Domains of Cost Management], 1992, p.
      Konvergenz von externem und internem Rechnungswesen [Conver-                     1480, K. Dellmann, K.P. Franz, Von der Kostenrechnung zum
      gence of External and Internal Accounting], 1999, p. 92.                         Kostenmanagement [From Cost Accounting to Cost Manage-
108   H.U. Küpper, Integration der Unternehmensrechnung [Integra-                      ment], 1994, p. 17.
      tion of Management Accounting], 1999, p. 5 f.                              127   This problem has been investigated mainly by the following
109   D. Pfaff, Zur Notwendigkeit einer eigenständigen Kostenrechnung                  researchers: on innovation costs, see A. G. Coenenberg, T.
      [On the Necessity of an Independent Cost Accounting Sys-                         Fischer, A. Raffel, Abweichungsanalyse bei Projekten im F&E-
      tem], 1994, pp. 1070–1076.                                                       Bereich [Variance Analysis with Projects in R&D], 1992,
110   Schneider sees a failure caused by obsolete cost accounting;                     pp. 767–877; on logistics costs, see J. Weber, Logistik-
      cf. D. Schneider, Versagen des Controlling durch eine überholte                  Kostenrechnung [Cost Accounting for Logistics], Berlin, 1987,
      Kostenrechnung [The Failure of Management Accounting Due                         J. Weber, Logistik-Controlling [Management Accounting for
      to Obsolete Cost Accounting], 1991, p. 765.                                      Logistics], 1993, pp. 115–152; on quality costs in a new
111   Cf. W. Männel, Schlanke Methoden und Konzepte der Kostenrech-                    approach, see H. Wildemann., Kosten- und Leistungsbeurteilung
      nung [Lean Methods and Concepts of Cost Accounting],                             von Qualitätssicherungssystemen [Assessing the Costs and Out-
      1995, p. 195.                                                                    put of Quantity Assurance Systems], 1992, pp. 762–768,
112   See J. Weber, Entfeinerung der Kostenrechnung? [Simplification                   A. Kandaouroff, Qualitätskosten [Quality Costs], 1994,
      of Cost Accounting?], 1992, p. 176 ff.; J. Weber, Kostenrech-                    pp. 765–786, A.K. Tomys, Kostenorientiertes Qualitäts-
      nung im System der Unternehmensführung [Cost Accounting in                       management. Qualitätscontrolling zur ständigen Verbesserung der
      the System of Enterprise Management], 1993, p. 63 ff; W.                         Unternehmensprozesse [Cost-Oriented Quality Management:
      Männel, Schlanke Methoden und Konzepte der Kostenrechnung                        Quality Management Accounting for Continuous Improve-
      [Lean Methods and Concepts of Cost Accounting], 1995,                            ment of Company Processes], Munich 1995, pp. 31–59, A.
      p. 194 ff.                                                                       Sasse, Systematisierung der Qualitätskosten [Systematization of
113   See J. Pampel, Bezugsgrößen [Resource Drivers], 2002.                            Quality Costs], 2000, pp. 43–53.
114   Cf. J. Weber, Kostenrechnung im System der Unternehmensführung             128   In this regard, see P. Horváth, A. Brokemper, Strategieorien-

              M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY      27   WINTER 2004, VOL. 5, NO. 2
      tiertes Kostenmanagement [Strategy-Oriented Cost Manage-                          periodic changes in incoming and outgoing payments to
      ment], ZfB, 1998, pp. 581–604.                                                    decision alternatives; ibidem p. 95 ff.
129   For an overview instead, see, for example, K. Dellmann, K.P.               144    See S. Dierkes, J. Kloock, Integration von Investitionsrechnung
      Franz, Von der Kostenrechnung zum Kostenmanagement                                und kalkulatorischer Erfolgsrechnung [Integration of Preinvest-
      [From Cost Accounting to Cost Management], 1994.                                  ment Analysis and Costing-Based Profit and Loss State-
130   On this view, see R. Cooper, R. S. Kaplan, The promise—and                        ment], 1999, p. 119 ff.; H.U. Küpper, Integration der
      peril—of integrated cost systems, 1998, p. 110. In German-                        Unternehmensrechnung [Integration of Management Account-
      speaking countries, Process Costing was regarded early on as                      ing], 1999, p. 9 f.
      more of an additional tool for short-term cost accounting to               145    Cf. W. Ballwieser, Eine neue Lehre der Unternehmensbewertung?
      be employed in parallel; cf. P. Horváth, M. Kieninger, R.                         [A New Doctrine of Enterprise Valuation?], 1997, p. 186; V.
      Mayer, C. Schimank, Prozesskostenrechnung— oder wie die                           H. Peemöller, Stand und Entwicklung der Unternehmensbewer-
      Praxis die Theorie überholt [Process Costing—Or How Practice                      tung [The State and Development of Enterprise Valuation],
      Is Overtaking Theory] and Kritik und Gegenkritik [Criticism                       1993, p. 409 ff.
      and Counter Criticism], 1993, p. 624 ff. The existing possi-               146    Cf., for example, J. Baetge, K. Niemeyer, J. Kümmel,
      bilities for integration into standard costing are described by                   Darstellung der Discounted-Cashflow-Verfahren [The Discounted
      R. Mayer, L. Kaufmann, Prozesskostenrechnung II [Process                          Cash Flow Methods], 2001, p. 267 ff.; W. Ballwieser,
      Costing II], 2000, pp. 291–321.                                                   Verbindungen von Ertragswert- und Discounted-Cashflow-
131   On target costing, see, above all, W. Seidenschwarz, Target                       Verfahren [Connecting the Earning-Capacity Value and Dis-
      Costing, 1993.                                                                    counted Cash Flow Method], 2001, p. 363 ff.; J. Drukarczyk,
132   For an overview of such approaches, see K. Ehrlenspiel, U.                        Unternehmensbewertung [Enterprise Valuation], 1998, p. 176 ff.;
      Lindemann, A. Kiewert, M. Steiner, Konstruktionsbegleitende                       L. Hölscher, Käuferbezogene Unternehmensbewertung [Buyer-
      Kalkulation [Concurrent Costing], 1996, pp. 63–67; P.                             Based Enterprise Valuation], 1998, p. 81 ff.; U. Pape, Wertori-
      Horváth, R. Gleich, K. Scholl, Kalkulationsmethoden für das                       entierte Unternehmensführung und Controlling [Value-Based
      kostengünstige Kalkulieren [Cost-Effective Costing Methods],                      Enterprise Management and Management Accounting],
      1996, pp. 53–62; W. Männel, Frühzeitige                                           1999, p. 57 ff.
      Produktkostenkalkulationen [Product Costing at an Early                    147    Cf. A. Rappaport, Shareholder Value, 1999.
      Stage], 1996, pp. 1–10.                                                    148    Cf. A. Rappaport, Shareholder Value, 1999, p. 39.
133   Cf. J. Becker, DV-Verfahren zur Unterstützung frühzeitiger                 149    Cf. P. Goniez, Wertmanagement [Value Management], 1993,
      Kostenschätzungen [DP Concepts for Supporting Cost Esti-                          p. 30.
      mates at Early Stages], 1996, p. 84 f.                                     150    Cf. A. Rappaport, Shareholder Value, 1999, p. 91 ff.
134   On the consideration of the life cycle in value-based corpo-               151    Cf. A. Rappaport, Shareholder Value, 1999, p. 40.
      rate governance, see also T. Siegert, M. Böhme, F. Pfingsten,              152    G. Sieben, Betriebswirtschaftliche Aspekte eines wertorientierten
      A. Picot, Marktwertorientierte Unternehmensführung im Lebenszy-                   Versorgungssystems [Business Aspects of a Value-Oriented
      klus [Market-Value-Based Enterprise Management in the                             Supply System], 1992, p. 348.
      Life Cycle], 1997, pp. 471–488.                                            153    This basic idea is also argued by H. Koch, Zur Frage der Vere-
135   See T. M. Fischer, J. Schmitz, Messung von Prozessverbesserun-                    inheitlichung der Entscheidungsrechnungen [On the Question of
      gen mit dem Half-Life-Konzept [Measuring Process Improve-                         Unifying Decision Calculations], 1999, p. 203. Koch even
      ment with the Half-Life Concept], 1997, pp. 291–310.                              proposes using costing-based planned profit and loss state-
136   See J. R. Pampel, Konzepte und Instrumente für das                                ments in the form of variable planning periods as the basis
      ressourcenorientierte Management [Concepts and Tools for                          for long-term decisions; see ibidem p. 195 ff.
      Resource-Oriented Management], 1998, p. 228 ff.                            154    Cf. N. Knorren, Wert-Orientiertes Controlling (WOC) [Value-
137   Cf. J. R. Pampel, Kapazitätsrechnung für das Ressourcenorien-                     Based Management Accounting], 1997, p. 207. On the
      tierte Leistungscontrolling [Capacity Accounting for Resource-                    requirements for the transfer to cost accounting and the role
      Oriented Output Management Accounting], 2001, pp. 44–46.                          remaining in this interaction for cost accounting, see also
138   Cf. M. Layer, Prognose, Planung und Kontrolle fixer Kosten                        Vodrazka, K., Earning-Capacity-Value-Oriented Enterprise Man-
      [Forecasting, Planning, and Controlling Fixed Costs], 1992,                       agement and Cost Accounting, 1999, pp. 481–493.
      pp. 69–76.                                                                 154B   Translator note—profitability information in the cost
139   See M. Günther, J. R. Pampel, Implementierung eines Konzepts                      accounting system in GPK.
      zur Kapazitalsrechnung [Implementing a Concept of Capacity                 155    W. Kilger, Flexible Plankostenrechnung und Deckungsbeitragsrech-
      Accounting], 1999, pp. 301–305.                                                   nung [Flexible Standard Costing and Contribution Margin
140   Cf. A. Rappaport, Shareholder Value, 1999; T. Copeland, T.                        Accounting], 8th edition, Wiesbaden 1981, p. 23.
      Koller, J. Murin, Unternehmenswert [Goodwill], 1998.
141   Cf. U. Pape, Wertorientierte Unternehmensführung und Controlling
      [Value-Based Enterprise Management and Management
      Accounting], 1999; T. Günther, Unternehmenswertorientiertes Con-
      trolling [Goodwill-Oriented Management Accounting], 1997.
142   On this approach, see H.U. Küpper, Investitionstheoretische
      Fundierung der Kostenrechnung [The Investment Theory
      Foundation of Cost Accounting], 1985, pp. 26–46.
143   J. Holzwarth, Differenzrechnungen als Verfahren einer strategischen
      Kostenrechnung [Differential Accounting as a Method of
      Strategic Cost Accounting], 1993, p. 100. For “strategic cost
      accounting,” Holzwarth proposes the assignment of multi-

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