This paper describes how to design and implement an integrated the Activity-Based Costing method with the Economic Value Added system to determine costs as well as measure performance. Motivation for switching to an integrated ABC-and-EVA system is presented. Pre-implementation stage and implementation steps are illustrated using data from an actual implementation of the system at a small design and manufacturing firm. Changes to product costs resulting from the inclusion of full capital cost are demonstrated. The impact of the increased accuracy of cost information on the company’s decision-making, potential long-term business performance, and expected shareholder wealth creation is discussed.
KEYWORDS:Activity-Based Costing, Economic Value Added, Performance Measure, Costing System