Variation in Production Volume: the Impact of Using an Integrated Abc-and-eva System to Reduce Distortions in Product Costs

This paper examines the impact of variation in production volume on product cost, as estimated by three different costing systems. Production volumes were categorized as being small, medium or large. A Traditional (volume based) Cost Accounting System (TCA), an Activity-Based Costing System (ABC), and an Integrated Activity-Based Costing and Economic Value Added System (Integrated ABC-and-EVA) were compared. This comparison is illustrated using data from a field study performed at a small manufacturing plant which designed and produced precision custom injection-molds. During this field study, we developed and implemented the Integrated ABC-and-EVA System. Our results showed that when production volume varies substantially, the Integrated ABC-andEVA System is more effective in reducing distortions in product cost than a TCA or standard ABC system.