PowerPoint Presentation by Gail B. Wright Professor Emeritus of
Accounting Bryant University Copyright 2007 Thomson South-Western,
a part of The Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license. MANAGEMENT
ACCOUNTING8th EDITIONBYHANSEN & MOWEN1 INTRODUCTION17
ENVIRONMENTAL COST MANAGEMENTSTUDENT EDITION
LEARNING OBJECTIVESDiscuss the importance of measuring
environmental costs. Explain how environmental costs are assigned
to products & processes.Describe the life-cycle cost assessment
model.Compare & contrast activity- & strategic-based
environmental control.
Why is it important to measure environmental costs?Awareness of
environmental costs is important because environmental regulations
& fines have increased. LO 1fines
ENVIRONMENTAL QUALITY COST MODELLooks at costs and their impact
for damage done to the environment. In addition to direct costs,
there are costs to preventing environmental degradation.LO 1
ENVIRONMENTAL DETECTION COSTSAre costs to determine compliance
with appropriate environmental standards including:Regulatory
government lawsVoluntary standards (ISO 14001)Managements
environmental policiesLO 1Managements environmental policies
What are environmental external failure costs?Environmental
external failure costs are costs of activities performed after
discharging contaminants & waste into the environment. LO 1
What information does an environmental cost report
provide?Environmental cost reports reveal 1) the impact of
environmental costs on firm profitability & 2) relative amounts
expended in each category. LO 1
Can environmental failure costs be reduced?Yes! Investing more
in prevention & detection activities will reduce environmental
failure costs. LO 1prevention
ENVIRONMENTAL COSTING: DefinitionFull environmental costing
assigns both private & societal costs to products. Private
costs are caused by internal processes.LO 2
FORMULA: Cadmium ExampleCosts are assigned proportionately when
multiple products are produced.LO 2External failure cost:= Total
failure cost Units produced= $150,000 / 20,000 = $7.50 per
unit$7.50 per unit
LIFE-CYCLE ASSESSMENT: DefinitionIdentifies environmental
consequences of a product through its entire life cycle &
searches for improvements.LO 3
ASSESSMENT STAGES3 formal stages Inventory analysisTypes,
quantities inputs neededEnvironmental releasesImpact
analysisEffects of competing designsRelative ranking of
effectsImprovement analysisObjective: to reduce environmental
impactsLO 3
ENVIRONMENTAL PERSPECTIVE5 objectives for environmental
perspectiveMinimize use of raw or virgin materialsMinimize use of
hazardous materialsMinimize energy requirements for production, use
of productMinimize release of solid, liquid, gaseous
residuesMaximize opportunities to recycleLO 4
Are environmental activities non-value-added?Because
environmental pollution is equivalent to economic inefficiency, all
failure activities are non-value-added.LO 4
ENVIRONMENTAL COST TREND GRAPHLO 4EXHIBIT 17-10Costs as a
percentage of sales trend downward over time.%
BAR GRAPH FOR TRENDSLO 4EXHIBIT 17-11Emissions trend downward
over time.%
HAZARDOUS WASTE PIE CHARTLO 4EXHIBIT 17-12How do pie charts
differ from other graphs in the information they provide?
