Integrating Activity-based Costing and Economic Value Added in Manufacturing

* Earlier version presented at ASEM 98. Accepted to Engineering Management Journal. Abstract This article presents a cost and performance measurement system that integrates activity-based costing (ABC) with the economic value added financial performance measure. This proposed ABC-and-EVA system is a management support tool for managing cost and capital. The integrated ABC-and-EVA system includes the rate of resource consumption (as in a traditional ABC system), but it also includes capital demand. A traditional ABC system is compared with an ABC-and-EVA system by examining the cost for each activity at the first stage. A firm’s capital information is then transformed into transparent capital charges using a newly developed method called ActivityCapital Dependence (ACD) Analysis. Changes to the endproduct costs and possible changes to corporate strategies and business performance in the proposed ABC-and-EVA system are discussed.