Grenzplankostenrechnung : GPK (German Cost Accounting) - PowerPoint PPT Presentation

jon hildenbrandt n.
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Grenzplankostenrechnung : GPK (German Cost Accounting)

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  1. Jon Hildenbrandt Grenzplankostenrechnung:GPK (German Cost Accounting)

  2. What is GPK?? GPK is a form of German cost accounting used by many companies in German speaking countries like Germany, Austria, and Switzerland. Grenzplankostenrechnung roughly translates as “flexible standard costing”. GPK was developed by Hans George Plaut and Wolfgang Kilger. Plaut was an automotive engineer who became involved with management accounting in the late 1940s. He identified and delivered a long-term and sustained methodology that helped correct cost accounting information. The German perception of American cost allocation was that it very arbitrarily applied costs and Plaut’s theory became the basis for the modern, strong controlling culture in German corporations.

  3. What is GPK? Kilger provided the academic side of GPK. He wrote Flexible Plankostenrechnung und Deckungsbeitragsrechnung, which is one of the most important cost accounting textbooks used by universities in German-speaking countries. Plaut and Kilger were focused on the main purposes of management accounting: Controlling costs. Managing profits. Providing information to managers that enable them to make informed decisions. They wanted to correct errors made by allocation of fixed costs to products and provide clear and reliable cost information to help managers make better decisions.

  4. Companies that use GPK and how effective they feel it is. Companies that use GPK: Porsche Stihl DaimlerChrysler AG MangaSteyr Brau Union German post office All of these companies have used GPK for at least twenty years. IMA conducted a survey asking the operations managers if they were happy with the system and trusted in it. Every respondent said yes. When asked if they were looking at making changes to the cost management methods, the answer was no in every case.

  5. Companies that use GPK and how effective they feel it is. This is a shocking disparity when compared to American companies. Some surveys have found that 98% of respondents say their cost information is distorted. Plaut founded an independent consulting business in 1946 that helped set up GPK for companies. That business has grown to employ more than 2000 consultants and set up GPK in hundreds of organizations. The most successful companies using GPK have a well designed roll out and leave nothing to chance. This is one of the main contributing factors as to why so many companies using GPK think so highly of it.

  6. Essential elements of GPK. Plaut created a list of essential elements for a good costing system in 1953. For cost centers: They should be clearly defined responsibility of a manager Represent homogenous purpose and costs Be economic in design and not too complex Represent the cost of resources consumed Fixed/proportional cost splitting should: Be done for each cost center by account/activity Apply resource drivers to distribute costs Employ capacity limitations/utilization Consider how costs behave under changing output levels

  7. Essential elements of GPK. Activities and drivers should be: Applied so that each cost center has at least one representative output measure Ensure that the relationship between the output measure and the proportional cost pool is linear Ensure that the relationship between the output measure and the object is linear. Analytical cost planning should: Be an integral component of budgeting and operational planning Be done for every cost center Reflect the demand under effective and efficient economic conditions

  8. Essential elements of GPK. Correct allocation of internal services cost should: Reflect true supply-and-demand conditions Apply pull logic. Ensure that the categorization of costs as propotional and fixed is sustained as costs cascade through the system. Standards should be stable throughout the planning period and be the basis for comparing variances.

  9. Benefits of GPK. Allows companies to break down the cost of products to any they want to, making it much easier to do make-or-buy analysis for products made at various locations worldwide. Stihl uses this to decide where to product their products and consider it very important aspect of their target costing practices. Excellent for capacity decisions. Fixed and proportional costs are seperated out making it easier to decide about eliminating capacity. Many companies use this to make cost comparisons and calculate cost effects of certain projects. It also allows for better variance analysis for the cost centers. Enhances responsibility accounting since managers are held responsible for costs under their direct control. Cost information is more transparent allowing for easier tracking of costs and looking into ways to cut costs. Using the contribution margin aids in sales and production planning allowing better decisions about which products to produce and sell to optimize for the whole company.

  10. Disadvantages of GPK. GPK does not provide management with information needed about indirect cost centers. Constant updating and reviewing can become a costly process requiring more personnel. GPK reports evaluate productivity using standards that are revised annually. This can cause difficulty in evaluating some valuable short term information about productivity improvements. Some companies that convert from a more traditional costing can make incorrect pricing decisions once the change is made since fixed costs are removed.

  11. Differences in ABC and GPK. ABC aims to allocate all the costs required to produce and market a product in the long run. GPK allocates only variable costs to products and provides information for short-term decisions. GPK allocates cost by cost center while ABC does it by activities and processes. Both systems use cost drivers in production-related areas to measure performance of the cost center and activities. ABC can employ non-output related cost drivers such as product complexity and the number of product variants while GPK does not. ABC uses these drivers to allocate total costs on products but GPK does not charge fixed costs.

  12. Differences in ABC and GPK. Both systems stress the issues of cost and profitability control through variance analysis. ABC has a distinct focus on the responsibility for the processes across cost centers and departments. Prozesskostenrechnung (PK) is a recent development. It’s a hybrid of ABC and GPK. ABC is used to analyze indirect costs including fixed costs in operations and support departments to improve product and service cost/profitability analysis. Some companies use ABC on a case-by-case basis, like the development of new products. ABC’s biggest problem is many companies do not have the patience to maintain it. GPK has achieved a level of sustainability for many companies for a long period of time. GPK is usually planned out and prepared for much better than ABC thanks to Plaut’s consulting firm.

  13. Why isn’t GPK used outside of German speaking countries? IMA conducted a study in June 2014 that found that GPK could help U.S. organizations in making decisions and controlling costs. The study said “GPK could cure what ails cost management at U.S. companies.” GPK is thought of so highly in Germany and could help U.S. companies so why is use not more widespread?? Differences in business culture: In America, financial reporting is the main focus and management accounting is not considered as important. In Germany, management accounting has always been the main focus making GPK systems much more appealing and useful. In Germany the interests of creditors come before the interests of shareholders. This leads to increased focus on management accounting since financial accounting provides little guidance for management decision making. In Germany, there is a cultural need for more precision. People feel they need a very detailed costing system for more accuracy.

  14. Why isn’t GPK used outside of German speaking countries? Differences in cost centers: German companies have a large number of fairly small cost centers that use one activity measure. German cost center managers also have responsibility for controlling proportional costs for several different cost centers. American companies have relatively few cost centers that are fairly large that use multiple measures of activity. American cost center managers usually have responsibility in only a single cost center. Labor laws: Germany has very strict labor laws making it much more difficult to reduce their labor costs. This forces German companies to be much more mindful of their fixed costs. GPK aids in this since it does not allocate fixed costs to products and keeps them separate for more easy tracking. American companies do not face this difficulty so GPK would not be as much of an asset.

  15. Why isn’t GPK used outside of German speaking countries? Education: Every German accounting student is exposed to GPK. Very few, if any, American students are. The textbook that teaches GPK has never been translated outside of German so finding information on it is more difficult. Another issue is so few American companies use GPK that anytime you have questions finding someone at another company with advice becomes nearly impossible (unless you speak German). Costs and complexities: When people are first exposed to GPK they are usually overwhelmed by it’s detail. GPK is also very costly to implement and maintain. Many costs are incurred in the planning stage when it is difficult to determine how beneficial the change will be in the future.

  16. Why isn’t GPK used outside of German speaking countries? Computer systems: Some ERP systems cannot handle GPK so converting to GPK would involve a new system as well. SAP is able to handle GPK but most companies do not use the full functionality for costing purposes. Making all these changes make many companies feel that the costs far outweigh the benefits of any change to GPK.

  17. Conclusion Any questions or comments?

  18. The End.