This paper describes a field study which examines the
implementation of an integrated Activity-Based Costing
and Economic Value Added System in two small
manufacturing firms. The results of this study suggest
that this integrated approach outperforms both
traditional cost accounting and standard Activity-Based
Costing methods. Furthermore, the findings from two
small companies show that the reliability of cost
information obtained by this integrated system increases
substantially when differences in capital usage exist.
Factors that could create these differences in capital
usage and lead to distorted cost information are
discussed. Using actual data from the field study,
possible distortions to product cost as a result of a
homogenous capital cost allocation are also examined.
Finally, the impact of this integrated approach on the
decision-making, strategic planning, and long-term
business performance of the two participating companies
is discussed.
