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Cost Concepts and Standards (CACS)”

Concepts and Constraints[edit]

Diagram of Principles, Concepts, and Constraints specific to the field of Management Accounting and its internal business users.

Principles[edit]

Management accountants can rely on causality and analogy as foundational principles as they are grounded in decision science – the laws of logic.

  • Causality principle — the relation between a managerial objective’s quantitative output and the input quantities that must be, or must have been, consumed if the output is to be achieved.

Principle of Causality enables modeling the organization’s costs based on the relationship between the inputs and outputs of the resources involved in the production of products and services it provides. Often this is straightforward when dealing with strong causal relationships (i.e. raw materials to make product A). However, where weaker causal relationships exist, costs need to be attributed according to the concept of attributability, which maintains the integrity of causality.

  • Analogy principle — the use of causal insights to infer past or future outcomes.

Principle of Analogy governs the user of management accounting information’s ability to apply the knowledge or insights gained from the causal relationships modeled (e.g., in planning, control, what-if analysis) using inductive and deductive reasoning about past and future outcomes for continuous optimization efforts.

Concepts[edit]

The following concepts serve as operational guidelines and modeling building blocks to the two main principles (causality and analogy) in developing a reflective cause & effect model and then using the information the model provides. These concepts are intended to cover a variety of assumptions that would make up a model, their characteristics, and relationships and to provide rational perspectives when modeling many managerial costing issues.

The first ten concepts support the Principle of Causality the modeling of Cause&Effect-based modeling principles, while the remaining four concepts are applicable to the Principle of Analogy and informational in nature and supports managers with decision making guidelines.Concepts applicable to causality and modeling:

  • Attributability
  • Capacity
  • Cost
  • Homogeneity
  • Integrated data orientation
  • Managerial objective
  • Resource
  • Responsiveness
  • Traceability
  • Work

Concepts applicable to analogy and information use:

  • Avoidability
  • Divisibility
  • Interdependence
  • Interchangeability

Constraints[edit]

The following constraints have been identified for management accounting. The quantitative and qualitative characteristics of these constraints are meant to serve as controls or checks and balances when constructing a cost model or when using management accounting information. The first five constraints are specific to Causality in the cost model, while the remaining two constraints deal with Analogy and the use of the information.[28]Constraints applicable to causality:

  • Materiality
  • Measurability
  • Objectivity
  • Verifiability

Constraints applicable to analogy information use:

  • Congruence
  • Impartiality