There has never been a workable cost-accounting method
Knowing and managing costs has been a major management concern, since the beginning of business. We have faced two major problems in managing costs:
- We do not have one entity that generates costs, and includes all costs incurred
- We do not have one entity that meaningfully absorbs costs for good management
One entity must generate all costs
Many methods have been contrived for costing and cost accounting. The methods try to gather “known” costs for separate entities like employees, fixed assets, cash, and supplies. The other capital utilized has never been defined and produces “unknown costs” or is labeled “intangible assets”. All costs come from consumption of tangible and intangible capital. This is performance and all capital utilized must be organized and defined as one entity “performance solution”.
One entity must absorb all costs
Costing methods charge costs against entities like center, station, activity, and product. Product is the only entity actually produced by the cost. However, many other outputs also are produced by costs. Products and other outputs produced by costs are part of one entity “result”. The result is the entity that contains the value created by the costs and is the only entity that can absorb costs to show the value added by performance.
Performance Solutions generate costs and Results absorb costs against Result value to manage value-added
The only way to know all of our costs and to charge costs properly to manage value added is Result-performance Costing. By establishing result value-quality chains, we can know the cost of every solution that produces a result to know the cost of producing the result. We can know the value of each result to know the value-added by performance. We can manage the cost and value of each result in the chain leading to the final product or service result that leaves the enterprise to produce our revenue and profit results.
Total result costs and value are accumulated in the result structure for responsibility, and in th performance structure for capital category and class. This is explained in the previous article “Know Unknown Costs through Result-performance Costing” in the 21st Century Management magazine.
There is only one method for complete result-performance costing
Result-performance Management (R-pM) organizes the business for 21st Century Management. R-pM is the only method that organizes all performance solutions to know all costs and all results to absorb costs properly against the value of the result produced. Organize your business with R-pM to employ Result-performance Costing.
The details on Result-performance Costing are explained in the R-pM Toolkit, your 21st Century Management Manual. Download your copy of the R-pM Toolkit, with free updates, at Result-performance-Management.com.
