Plankosten

What Is Plankosten?

Plankosten, a term originating from German cost accounting principles, refers to planned or predetermined costs calculated in advance for a specific future period under normal operating conditions. Unlike actual costs, Plankosten are forward-looking estimates that serve as benchmarks within a company's managerial accounting system. They represent the anticipated consumption of production factors, such as materials, labor, and overhead, required to achieve a planned output level. The core purpose of Plankosten is to facilitate effective cost control and performance measurement by providing a basis for comparison against actual expenditures.

History and Origin

The concept of Plankosten is deeply rooted in German business administration (Betriebswirtschaftslehre) and its sophisticated approach to internal accounting. The term itself is attributed to Max Rudolf Lehmann, a German economist who began using "planmäßige Kosten" (planned costs) in 1925, later shortening it to "Plankosten". ¹³This development occurred during a period when cost accounting was becoming increasingly advanced, prompting business economists to develop models for proactive cost planning.

Plankosten, and the broader German costing methodology known as Grenzplankostenrechnung (GPK), evolved significantly in the mid-20th century. GPK, developed in the late 1940s and 1950s, aimed to provide a consistent and accurate method for calculating and assigning managerial costs to products or services. This emphasis on meticulous cost planning and analysis aligns with the strong controlling culture prevalent in German corporations. The Institute of Management Accountants (IMA), a global association for management accounting and finance professionals, emphasizes that management accounting provides crucial information for internal decision-making, reflecting the strategic importance of concepts like Plankosten in business operations.
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Key Takeaways

Plankosten are pre-determined, forward-looking costs established for a future period, based on planned activity levels and efficient operations.
They serve as crucial benchmarks for budgeting, cost control, and performance evaluation within a company.
The calculation typically involves multiplying planned quantities of inputs by their planned prices.
Plankosten facilitate variance analysis by allowing comparison between planned and actual costs, highlighting areas for management attention.
Their application is central to effective managerial accounting, particularly in manufacturing and production-oriented industries.

Formula and Calculation

The fundamental calculation for Plankosten involves determining the planned quantity of a resource needed and multiplying it by its planned unit price.

For a specific cost element (e.g., direct materials, direct labor, or overhead costs), the formula can be expressed as:

\text{Plankosten} = \text{Planmenge} \times \text{Planpreis}

Where:

(\text{Planmenge}) represents the planned quantity of a particular input (e.g., kilograms of material, hours of labor) required for the planned output.
(\text{Planpreis}) represents the planned unit price of that input (e.g., price per kilogram of material, hourly labor rate).

When calculating Plankosten for a department or an entire product, this calculation is aggregated across all relevant direct costs and indirect costs. For instance, if a company plans to produce 1,000 units and each unit requires 2 kilograms of material at a planned price of $5 per kilogram, the Plankosten for materials would be (1,000 \text{ units} \times 2 \text{ kg/unit} \times $5/\text{kg} = $10,000).

Interpreting the Plankosten

Plankosten are interpreted as the expected or "should be" costs for a given level of activity, assuming efficient operations and adherence to plans. They are not merely forecasts but rather a management tool reflecting desired performance. When a company calculates its Plankosten, it establishes a target against which future actual performance can be measured.

A primary application of Plankosten is in variance analysis. By comparing the Plankosten to the actual costs incurred, management can identify deviations. A positive variance (actual cost > Plankosten) suggests an unfavorable deviation, indicating that costs were higher than planned, potentially due to inefficiencies, higher prices, or increased material usage. Conversely, a negative variance (actual cost < Plankosten) suggests a favorable deviation, meaning costs were lower than planned. Analyzing these variances helps pinpoint problem areas or successes, prompting further investigation into their root causes, whether they are related to volume, price, or efficiency. This continuous comparison and analysis drive effective cost control.

Hypothetical Example

Consider "Alpha Manufacturing," a company that produces custom furniture. For the upcoming quarter, Alpha plans to produce 500 wooden chairs. To set their Plankosten for direct materials, they estimate that each chair will require 2.5 meters of wood, and the planned price for wood is $12 per meter.

Determine Planned Quantity per Unit: 2.5 meters of wood per chair.
Determine Planned Output: 500 chairs.
Calculate Total Planned Quantity of Wood: (2.5 \text{ meters/chair} \times 500 \text{ chairs} = 1,250 \text{ meters}).
Determine Planned Price per Unit of Input: $12 per meter of wood.
Calculate Plankosten for Wood: (1,250 \text{ meters} \times $12/\text{meter} = $15,000).

So, Alpha Manufacturing's Plankosten for the wood required to produce 500 chairs is $15,000. This $15,000 figure then serves as a benchmark for the actual wood costs incurred during the quarter. If Alpha spends $16,000 on wood, a $1,000 unfavorable material cost variance exists, prompting an investigation into whether the deviation was due to higher wood prices or more wood being used than planned.

Practical Applications

Plankosten are a fundamental component of sophisticated cost accounting systems, particularly prevalent in manufacturing and other production-intensive industries. Their practical applications include:

Budgeting and Planning: Plankosten form the basis for creating detailed budgets, including flexible budgets, as they provide a clear target for anticipated expenditures.
Cost Control and Management: By comparing actual results to Plankosten, businesses can identify cost deviations, allowing management to take corrective action and maintain financial discipline. ⁹, ¹⁰This is critical for businesses, especially manufacturers, which are increasingly shifting focus to cost management amid evolving supply chains and economic pressures.
⁸* Pricing Decisions: Understanding the planned cost of production helps in setting competitive and profitable selling prices for products and services.
Performance Evaluation: Plankosten provide a benchmark for evaluating the efficiency of departments, processes, and individual managers. Favorable or unfavorable variances from Plankosten can be used to assess operational effectiveness.
Profitability Analysis: By understanding the planned costs associated with each product or service, companies can better analyze their potential profitability and make informed decisions about product mix and resource allocation. For example, robust industrial output in economies like Germany often relies on such precise cost management to ensure competitiveness.
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Limitations and Criticisms

While Plankosten offer significant benefits for cost control and performance measurement, they are not without limitations. Their effectiveness can be challenged in dynamic business environments.

One major criticism is that Plankosten, especially in a rigid system, may not adequately account for unexpected changes in operating conditions, such as sudden shifts in demand, raw material prices, or production processes. If the underlying assumptions for the planned costs are no longer valid, the Plankosten become less relevant as benchmarks. For example, global supply chain disruptions, which have become more common, can significantly impact input costs and make pre-determined Plankosten quickly obsolete. ⁵The increased complexity and volatility in modern supply chains make traditional cost accounting methods, including those reliant on static Plankosten, challenging to apply effectively.
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Furthermore, an overemphasis on adhering strictly to Plankosten can sometimes lead to undesirable managerial behavior. For instance, managers might prioritize meeting cost targets over quality, innovation, or customer satisfaction. Setting Plankosten too low can also demotivate employees if targets are perceived as unattainable, while setting them too high might encourage complacency or waste. ³In highly automated or technologically advanced industries, the proportion of fixed costs tends to be higher than variable costs, which can complicate the application of traditional Plankosten models that often assume a direct relationship between activity and variable costs.

Plankosten vs. Standardkosten

While often used interchangeably or seen as closely related, Plankosten and Standard Costs have distinct nuances, particularly in their origins and application scope.

Feature	Plankosten	Standardkosten
Origin	Primarily associated with German cost accounting (Betriebswirtschaftslehre) and often refers to planned costs for specific cost centers or overall planned operations. The term itself can be traced back to German economists. ²	More commonly associated with Anglo-American cost accounting practices. Introduced in the 1920s as an alternative to historical costing methods.
Scope	Broadly covers planned costs for various organizational units (e.g., cost centers, departments) and planned activities, often encompassing both fixed and variable components in flexible systems. It represents the "should be" costs for a planned activity level.	Typically refers to the expected cost of a single unit of product under efficient operating conditions. It focuses on setting a per-unit cost benchmark for materials, labor, and overhead for standardized production processes.
Flexibility	Often associated with "flexible Plankostenrechnung" (flexible planned cost accounting), which distinguishes between fixed costs and variable costs to adapt to varying activity levels. ¹	While flexible budgeting can be applied with standard costs, the concept of standard cost itself can sometimes be rigid, especially if not frequently updated or if applied in environments with significant production volume fluctuations.
Purpose	Primarily used for internal planning, control, and performance evaluation, particularly for overall cost management and budgeting.	Used for internal control, inventory valuation, and simplifying cost accounting, often with a focus on detailed per-unit cost benchmarks and efficiency analysis for repetitive manufacturing.

While both concepts involve pre-determining costs to serve as benchmarks, Plankosten often imply a more comprehensive, systematic planning approach integrated into a company's overall operational framework, particularly distinguishing between fixed and variable cost behavior.

FAQs

What is the main purpose of Plankosten?

The main purpose of Plankosten is to establish a clear, forward-looking benchmark for expenses. This allows management to plan resources effectively, control costs by comparing planned versus actual costs, and evaluate the performance of different operational areas within a business.

How do Plankosten contribute to cost control?

Plankosten contribute to cost control by providing a baseline. When actual expenses deviate from Plankosten, these differences (variances) signal areas that require management attention. Analyzing these variances helps identify inefficiencies, unexpected price changes, or other factors affecting costs, enabling timely corrective actions.

Are Plankosten the same as a budget?

Plankosten are closely related to a budget but are not precisely the same. Plankosten represent the planned costs for specific activities or outputs under normal, efficient conditions. A budget is a broader financial plan that aggregates these planned costs across all activities for a period and often includes revenue and cash flow projections, serving as an overall financial roadmap for the organization.

Can Plankosten be applied to service industries?

Yes, Plankosten can be applied to service industries. While they originated in manufacturing, the principles of planning and controlling costs are universal. In service industries, Plankosten might involve estimating the planned cost per client hour, per project, or per service unit, including planned labor, technology, and other overhead costs required to deliver the service efficiently.

What happens if actual costs are higher than Plankosten?

If actual costs are higher than Plankosten, it indicates an unfavorable variance. This means that more resources were used, or the resources cost more than initially planned. Management would then conduct a detailed variance analysis to understand the reasons, such as unexpected price increases for inputs, inefficient use of materials or labor, or lower-than-planned productivity.