Integrating Activity Based Costing (ABC) And Economic Value Added (EVA) System in Order to Increase Profitability: A Case Study At PT. X Garments Manufacturer
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. This thesis presents a cost and performance measurement system that integrates ABC with EVA financial performance measure at PT.X garments manufacturer.
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