Economic value added based on activity based costing and an application on a production company

In recent years, along with increasing importance of value-based management, one of the important fundemental factors to be considered as a successful firm is to maximize shareholders? value. The indicator for this is increasing level of positive economic value added.In order to create this positive economic value added; companies must create positive added value at lowest operational level activities as well as the product made as the result of these activities. This value must be measurable in order to develop long term strategies which will increase business performance and will provide competitive advantage to the firm. The economic value added of a product can be calculated as comparison of net profit after the tax for that product and share for that product from the cost of capital. Thus these two values must be calculated accurately. Otherwise, the real added values for products can not be calculated precisely. The activity based costing provides better data to find real added value of products. With these technique cost of activities can be distributed to products more accurately and cost of capital for the production can be calculated based on products.Based on these, the goal of this thesis is to explain integrated practise of two methods by forming theoretical a therotical frame for comparison of economic value added based on activity based costing.The data is gathered from literature review, financial data from the companies, and interviews conducted with the employees. First; structures, dynamics, advantages and disadvantages of activity based costing and economic value added methodologies were explained. Then, details of calculation for cost of capital was explained. Finally, integration of all these methodologies and implication of this integration was discussed.According to results, activity based costing and integrated system approach produces different results. Economic value added of product which is gained by integrated system approach helps to determine accurately the product profits and therefore shed light on company decisions such as product mixing and production volume. Managers focus on profitable products by the integrated system, and it helps to increase awareness of capital cost in all over company. In conclusion, using together activity based costing and economic value added in a company might provide important competitive advantages by improving the performance of business.