Grenzplankostenrechnung - Core Elements of GPK

Core Elements of GPK

According to German Professors Dr.'s Friedl, Kuepper and Pedell, the fundamental structure of GPK consists of four important elements:

1. Cost-type accounting,
2. Cost center accounting,
3. Product cost accounting, and
4. Contribution margin accounting for profitability analysis.

• Cost-type accounting separates costs like labor, materials, and depreciation, followed by each cost account then being broken down into fixed and proportional costs along with the assignment of these cost accounts to cost centers.

• Cost center accounting is the most important element in GPK. A cost center can be defined as an area of responsibility that is assigned to a manager who is held accountable for its performance. It is common to have from 200 to over 2,000 cost centers in a typical GPK adopter organization.

GPK distinguishes two types of cost centers:

• Primary Cost Centers - are cost centers that provide output directly consumed by a saleable product or service is considered to be a primary cost center. related to the service or manufacturing process.
• Secondary Cost Centers - are cost centers that incur costs but exist to support the functions of the primary cost centers. Typical secondary cost centers include: information technology (IT) services and; human resources (HR) areas that offer hiring and training functions.

With the GPK marginal costing approach, primary cost centers outputs consumed by products/services reflect direct causal relationships, as well as causally-linked costs originating from supporting secondary cost centers that primary cost centers need to function. As such, both of these causally-linked outputs—if proportional in nature—will vary with product/service output volume (albeit the secondaries only indirectly) and are reflected in the appropriate product/service contribution margin in the P&L.

• Product/Service cost accounting also referred to as Product Costing, is where all of the assigned costs that are product related will be collected in the GPK costing model. In GPK's purest marginal form only proportional costs are assigned to products or services, but as indicated above a compromise is often struck by also assigning product-related fixed costs.

• Profitability management is the final component that completes the marginal costing system by adding in the revenues, cost-to-serve and common fixed costs along with the product/service cost accounting information discussed above. (Refer to the Exhibit below for a graphic depiction of cost flows in GPK.) The GPK structure allows for a more detailed analysis because of the multi-dimensional contribution margin view. This type of multi-level profitability management not only supports short-term decision making such as pricing decisions or internal pricing transfers, but it also provides relevant costing information for long-term decisions.