This paper examines the impact of variation in production volume on product cost, as estimated by three different costing systems. Production volumes were categorized as being small, medium or large. A Traditional (volume based) Cost Accounting System (TCA), an Activity-Based Costing System (ABC), and an Integrated Activity-Based Costing and Economic Value Added System (Integrated ABC-and-EVA) were compared. This comparison is illustrated using data from a field study performed at a small manufacturing plant which designed and produced precision custom injection-molds. During this field study, we developed and implemented the Integrated ABC-and-EVA System. Our results showed that when production volume varies substantially, the Integrated ABC-and-EVA System is more effective in reducing distortions in product cost than a TCA or standard ABC system.
KEYWORDS:Activity-Based Costing, Costing System, Economic Value Added