Chapter 11: Costing And Performance Evaluation In A Competitive Environment

Question 1

Describe Activity Based Costing

Answer 1

Activity based costing (ABC) is the costing of activities of overheads based on an allocation of relevant cost drivers. Cost drivers are attached to the unit of each output

Question 2

What is economic value added (EVA)?

Answer 2

EVA is an accounting formula used to measure shareholder value.

EVA = NOPAT - (Return x Capital Invested)

NOPAT = net operating profit after tax
R = required rate of return 
C = Captital invested/Net Assets