Integrating activity-based costing and economic value added

Article Abstract:

Integrating the theory of economic value added (EVA) into activity-based costing (ABC) allows organizations to maximize profits, an advantage which the ABC approach alone cannot provide. The concept of EVA states that an investment must generate returns equivalent to at least its cost of capital to be considered economically justified. The combined EVA-ABC system requires that the capital used for each product be identified and that a risk-adjusted rate for that capital be determined. This approach is advantageous in the sense that it allows the decision maker to become sensitive to the economic return of customers, products and distribution channels while rewarding the more efficient utilization of capital. Thus, organizations are able to maximize short-term profits even when bottlenecks exist.

Accounting Methods, Cost Control Techniques, Cost Accounting, Accounting and auditing, Accounting, Value added, Costs, Industrial, Industrial costs

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The scope of strategic cost management

Article Abstract:

Strategic cost management, unlike traditional management accounting, incorporates outside drivers of costs such as suppliers and customers into the total cost of a product. The process involves determining procurement costs based on the costs associated with the quality, reliability and delivery performance of the components used in a product. Specific costs are also assigned to customers, with those ordering large quantities and requiring less after-sales support considered less costly than those ordering small quantities and requiring more support. In addition, strategic cost management allows firms to integrate their cost management systems with those of suppliers and customers to reduce costs in the value chain and enhance their strategic position.

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What is strategic cost management?

Article Abstract:

Strategic cost management refers to the use of cost management methods that not only cut costs but also enhances the strategic advantage of an organization. This concept is applicable in different environments, including service firms, manufacturing companies and nonprofit organizations. The pursuit of strategic cost management requires that an entity implement only those cost management programs that improve the competitive edge of the firm and avoid those that do not make an impact on the competitive position and that undermine the competitive advantage. Organizations should audit their current and planned cost management initiatives and weed out those counterproductive programs and retain and add more strategic cost management endeavors.

Strategic planning (Business)

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