GAP Leave It to the Germans to develop a costing model based on detail, precision and improving overall control. Flexible Analytic Cost Planning and Accounting (GAP) is a powerful tool, having withstood 60 years of alternative methodologies and widespread hands-on use across Europe. In manufacturing companies, particularly those with a homogeneous product line, GAP can be used to define the effects of resource consumption to the bottom line while greatly illustrating to management their marginal cost tiers. The nature of GAP Is to show managers what their true reduction costs are In order to drive strategy.
But Isn’t that the goal of most other cost accounting methods, such as activity-based costing and Japanese target costing? By understanding GAP through Its applicability, comparisons can be made to these other methods to determine if it is superior, necessary or, indeed, complementary to them. It is quite noteworthy that Andrea STILL GAG & Co. , KEG, a privately held firm, uses GAP and GAP-based systems to assist In their corporate strategy. This speaks to the value of a GAP model, which Is first measured against a traditional target costing approach. GAP vs..
Target Costing In broad terms GAP and target costing are similar in that they both are used to drive cost control. It is the extent – or motive – of cost control efforts, however, that contrasts the two. Target costing begins with desired profit margin. A firm Identifies the profit required to Justify production and subtracts It from the competitive market price to derive their target cost standard. Based on current production costs and capacity levels the company can hone in on their target cost reduction amounts through resource allocation, supply chain management, or product re-designs.
Both methods consider customer demand at implementation and, therefore, “pull” costs through production. There is a known standard at which production outcomes are deemed efficient or feasible. Processes and resource consumption are adjusted accordingly. Yet, while target costing is used to address profit control, GAP is used to address cost control. Compared to GAP, target costing appears much more simplistic. As such using desired profit margin to back into production efficiencies will usually downplay the need to implement some upfront accountability by the cost enters involved.
A product feature may receive a higher proportion of production cost and resources depending on how important It Is deemed In generating the desired level of profit. A GAP approach Is more likely to Identify wasteful use of resources. GAP vs.. BBC Sherman notes in his article that BBC, or PC (Presumptuousness’s) in Germany, “has recently been incorporated as an extension or sophistication of GAP”. 1 From here the similarities and differences can be examined. In broad terms both methods approach costs Day assailing to cost centers. 0 some extent managers are expansible for spending variances using BBC although with GAP each manager is responsible and accountable for all expenses originating from their department. BBC does assign costs using more realistic cost drivers than a traditional CAP approach, but with not nearly the detail and flexibility as GAP. BBC models tend to be based on historic performance rather than an adjustment of operational capacity and resources based on anticipated outputs. Figure 1 below uses the Maple Hill Dairy Farm case to illustrate how BBC and GAP might report contribution of a single product line.