Integrating Activity-Based Costing with Economic Value Added

Tandung Huynh; Guangming Gong; Anhtuan Nguyen

doi:doi:10.11648/j.jim.20130203.11

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Integrating Activity-Based Costing with Economic Value Added

Tandung Huynh, Guangming Gong, Anhtuan Nguyen

Published in Journal of Investment and Management (Volume 2, Issue 3)

Received: 19 May 2013 Published: 10 June 2013

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Abstract

Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.

Published in	Journal of Investment and Management (Volume 2, Issue 3)
DOI	10.11648/j.jim.20130203.11
Page(s)	34-40
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

Integration, Activity Based Costing (ABC), Economic Value Added (EVA™), EVA-ABC Model

References

[1]	Akyol, D.E., Tuncel, G. and Bayhan, G.M., 2005. A comparative analysis of activity-based costing and traditional costing. World Academy of Science, Engineering and Technology, 3, 44-47.
[2]	Cohen, S., Venieris, G. and Kaimenaki, E., 2005. ABC: adopters, supporters, deniers and unawares. Managerial Auditing Journal, 20(9), 981-1000.
[3]	Cooper, R. and Kaplan, R.S., 1991. Profit priorities from activity-based costing. Harvard Business Review, May-June, 130-135.
[4]	N. Chiadamrong, 2003. Integrating abc and eva to evaluate investment decisions. AJSTD, 20 (1), 87-95.
[5]	Hansen, D.R. and Mowen, M.M., 2003. Cost Management: Accounting and Control. Peking: Peking University Press.
[6]	Hilton Ronald W., 2002. Managerial accounting – creating value in a dynamic business environment. China Machine Press.
[7]	Horngren, Charles T., Sundem Gary L., Stratton William O. Introduction to management accounting. Peking University Press, 2007.
[8]	Kaplan, R.S. and Atkinson, A.A., 1998. Advanced Management Accounting. Prentice Hall International, Inc.
[9]	Kaplan, R.S. and Anderson, S., 2004. Time-Driven Activity-Based costing. Harvard Business Review, 2004, November, 1-9.
[10]	Kevin Baird, 2007. Adoption of activity management practices in public sector organizations, Accounting and Finance, 47, 551-569.
[11]	Khozein, A. and Dankoob, M., 2011. Activity Based Costing System and its Succeed Implementing in Organizations. Australian Journal of Basic and Applied Sciences, 2011, 5(10), 613-619.
[12]	Lewis, L.D., 1992. Activity-Based Costing: A Tool for Management. Central Business Review, 11(2), 28-30.
[13]	Nassar, M., Al-Khadash, H.A. and Sangster, A., 2011. The diffusion of activity-based costing in Jordanian industrial companies. Qualitative Research in Accounting & Management, 8(2), 180-200.
[14]	Nikhil Chandra Shil, 2009. Performance Measures: An Application of Economic Value Added. International Journal of Business and Management, 4(3), 169-177.
[15]	Nthoesane, Meiya G., 2012. The development of a value creating competencies index: The economic value added (EVA) approach. African Journal of Business Management, 6(10), 3562-3569.
[16]	Roztocki, N., & Needy, K. L., 1999. How to Design and Implement an Integrated Activity-Based Costing and Economic Value Added System. Proceedings from the Industrial Engineering research '99 Conference.
[17]	Stewart, G. B., 1990. The Quest for Value: the EVA management guide, Harper Business, New York.
[18]	Zhang, Y.F. and Isa, C.R., 2010. Behavioral and organizational variables affecting the success of ABC success in China. African Journal of Business Management, 4(11), 2302-2308.

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APA Style

Tandung Huynh, Guangming Gong, Anhtuan Nguyen. (2013). Integrating Activity-Based Costing with Economic Value Added. Journal of Investment and Management, 2(3), 34-40. https://doi.org/10.11648/j.jim.20130203.11

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ACS Style

Tandung Huynh; Guangming Gong; Anhtuan Nguyen. Integrating Activity-Based Costing with Economic Value Added. J. Invest. Manag. 2013, 2(3), 34-40. doi: 10.11648/j.jim.20130203.11

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AMA Style

Tandung Huynh, Guangming Gong, Anhtuan Nguyen. Integrating Activity-Based Costing with Economic Value Added. J Invest Manag. 2013;2(3):34-40. doi: 10.11648/j.jim.20130203.11

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@article{10.11648/j.jim.20130203.11,
  author = {Tandung Huynh and Guangming Gong and Anhtuan Nguyen},
  title = {Integrating Activity-Based Costing with Economic Value Added},
  journal = {Journal of Investment and Management},
  volume = {2},
  number = {3},
  pages = {34-40},
  doi = {10.11648/j.jim.20130203.11},
  url = {https://doi.org/10.11648/j.jim.20130203.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20130203.11},
  abstract = {Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.},
 year = {2013}
}

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TY  - JOUR
T1  - Integrating Activity-Based Costing with Economic Value Added
AU  - Tandung Huynh
AU  - Guangming Gong
AU  - Anhtuan Nguyen
Y1  - 2013/06/10
PY  - 2013
N1  - https://doi.org/10.11648/j.jim.20130203.11
DO  - 10.11648/j.jim.20130203.11
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 34
EP  - 40
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20130203.11
AB  - Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.
VL  - 2
IS  - 3
ER  -

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Author Information

Tandung Huynh

Business School, Hunan University, China
Guangming Gong

Business School, Hunan University, China
Anhtuan Nguyen

Faculty of Accounting and Auditing in Industrial University of Hochiminh City, Vietnam

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Plain Text BibTeX RIS

APA Style

Tandung Huynh, Guangming Gong, Anhtuan Nguyen. (2013). Integrating Activity-Based Costing with Economic Value Added. Journal of Investment and Management, 2(3), 34-40. https://doi.org/10.11648/j.jim.20130203.11

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ACS Style

Tandung Huynh; Guangming Gong; Anhtuan Nguyen. Integrating Activity-Based Costing with Economic Value Added. J. Invest. Manag. 2013, 2(3), 34-40. doi: 10.11648/j.jim.20130203.11

Copy | Download

AMA Style

Tandung Huynh, Guangming Gong, Anhtuan Nguyen. Integrating Activity-Based Costing with Economic Value Added. J Invest Manag. 2013;2(3):34-40. doi: 10.11648/j.jim.20130203.11

Copy | Download

@article{10.11648/j.jim.20130203.11,
  author = {Tandung Huynh and Guangming Gong and Anhtuan Nguyen},
  title = {Integrating Activity-Based Costing with Economic Value Added},
  journal = {Journal of Investment and Management},
  volume = {2},
  number = {3},
  pages = {34-40},
  doi = {10.11648/j.jim.20130203.11},
  url = {https://doi.org/10.11648/j.jim.20130203.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20130203.11},
  abstract = {Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.},
 year = {2013}
}

Copy | Download

TY  - JOUR
T1  - Integrating Activity-Based Costing with Economic Value Added
AU  - Tandung Huynh
AU  - Guangming Gong
AU  - Anhtuan Nguyen
Y1  - 2013/06/10
PY  - 2013
N1  - https://doi.org/10.11648/j.jim.20130203.11
DO  - 10.11648/j.jim.20130203.11
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 34
EP  - 40
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20130203.11
AB  - Activity-Based Costing (ABC) was developed in the mid 1980s by Kaplan and it has been applied very popular in developed countries with obvious advantages. Although ABC system has more advantages than traditional costing (TC) system, but in today’s competitive economic environment it has not met fulfilled provision of sufficient information for decision-making, especially single ABC method ignores capital cost. The lack of capital cost is the reason why some products have inaccurate product costs and as results of that they have profit under ABC method but when capital cost is charged to those products, they cause a loss because they consume high invest fund. Imprecise information provided by single ABC method to managers is the reason why managers make inaccurate decisions. How to overcome this limitation of ABC? This paper researches on the integration of ABC with Economic Value Added (EVA™) as one way to overcome its limitation and innovation management accounting. Based on the data provided by Dong Su Company, this paper calculated profits of two customer groups using the new methodology (EVA-ABC) and also the old methodology (single ABC) to show how vague or inaccurate is the results you get when you use the old methodology and how accurate is the results you get when using the new methodology. The calculation showed that under EVA-ABC group 1 generates the value (13%) for this company but group 2 reduces the value of the business and destroy its capital (-8%). However under the single ABC method, the calculation showed that both two customer groups create profits for Dong Su with profit rate are 20% and 4% respectively which was incorrect.
VL  - 2
IS  - 3
ER  -

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