F5 handout 1 for Dec 2011

Advanced costing methods

1. Activity based costinga) Identify appropriate cost drivers under ABC.[1]b) Calculate costs per driver and per unit using ABC.[2]c) Compare ABC and traditional methods of overhead absorption based on production units, labour hours or machine hours.[2]

2. Target costinga) Derive a target cost in manufacturing and service industries.[2]b) Explain the difficulties of using target costing in service industries.[2]c) Suggest how a target cost gap might be closed.[2]

3. Life-cycle costinga) Identify the costs involved at different stages of the life-cycle.[2]b) Derive a lifecycle cost in manufacturing and service industries.[2]c) Identify the benefits of life cycle costing.[2]

4. Throughput accountinga) Calculate and interpret a throughput accounting ratio (TPAR).[2]b) Suggest how a TPAR could be improved.[2]c) Apply throughput accounting to a multi-product decision-making problem.[2]

5. Environmental accountinga) Discuss the issues business face in the management of environmental costs.[2]b) Describe the different methods a business may use to account for its environmental costs.[1]

ATC – Adding Value To Your Future 1

ADVANCE COSTING METHODS

ACTIVITY BASED COSTING

TARGET COSTING

LIFE-CYCLE COSTING

THROUGHPUT ACCOUNTING

ENVIRONMENTAL ACCOUNTING

1 Activity based costing

Activity based costing (ABC) is just one of the many methods that can be used to determine the cost per unit. It’s therefore useful to remind ourselves why we might need to know this cost.

• Inventory valuation the cost per unit can be used to value inventory in the statement of financial position (balance sheet).• To record costs the costs associated with the product need to be recorded in the income statement.• To price products the business will use the cost per unit to assist in pricing the product. For example, if the cost per unit is $0.30, the business may decide to price the product at $0.50 per unit in order to make the required profit of $0.20 per unit.• Decision making the business will use the cost information to make important decisions regarding which products should be made and in what quantities.

How can we calculate the cost per unit?So we know why it’s so important for the business to determine the cost of its products. We now need to consider how we can calculate this cost.There are a number of costing methods available. In this section we are going to focus on one of the modern costing techniques, ABC. However, in order to understand ABC and the benefits that it can bring, it is useful to start by reminding ourselves of the traditional absorption costing method.

Absorption costing a reminderThe aim of traditional absorption costing is to determine the full production cost per unit.


When we use absorption costing to determine the cost per unit, we focus on the production costs only. We can summarise these costs into a cost card:

$Direct materials per unit XDirect labour per unit XProduction overhead per unit X

—Full production cost per unit X

—

It is relatively easy to estimate the cost per unit for direct materials and labour. In doing so we can complete the first two lines of the cost card. However, it is much more difficult to estimate the production overhead per unit. This is an indirect cost and so, by its very nature, we do not know how much is contained in each unit. Therefore, we need a method of attributing the production overheads to each unit. All production overheads must be absorbed into units of production, using a suitable basis, e.g. units produced, labour hours or machine hours. The assumption underlying this method of absorption is that overhead expenditure is connected to the volume produced.

Illustration 1 Absorption costing Saturn, a chocolate manufacturer, produces three products:• The Sky Bar, a bar of solid milk chocolate.• The Moon Egg, a fondant filled milk chocolate egg.• The Sun Bar, a biscuit and nougat based chocolate bar.g

Information relating to each of the products is as follows:

Sky Bar Moon Egg Sun BarDirect labour cost per unit ($) 0.07 0.14 0.12Direct material cost per unit ($) 0.17 0.19 0.16Actual production/ sales (units) 500,000 150,000 250,000Direct labour hours per unit 0.001 0.01 0.005Direct machine hours per unit 0.01 0.04 0.02Selling price per unit ($) 0.50 0.45 0.55

Annual production overhead = $80,000

RequirementUsing traditional absorption costing, calculate the full production cost per unit and the profit per unit for each product. Comment on the implications of the figures calculated.

SolutionAs mentioned, it is relatively easy to complete the first two lines of the cost card. The difficult part is calculating the production overhead per unit, so let’s start by considering this. We need to absorb the overheads into units of production. To do this, we will first need to calculate an overhead absorption rate (OAR):


Production overhead (this is $80,000, as per the question)OAR = Activity level (this must be chosen)

The activity level must be appropriate for the business. Saturn must choose between three activity levels:

We can now absorb these into the units of production:

• Units of production - This would not be appropriate since Saturn produces more than one type of product. It would not be fair to absorb the same amount of overhead into each product.

• Machine hours or labour hours – It is fair to absorb production overheads into the products based on the labour or machine hours taken to produce each unit. We must decide if the most appropriate activity level is machine or labour hours. To do this we can look at the nature of the process. Production appears to be more machine intensive than labour intensive because each unit takes more machine hours to produce than it does labour hours. Therefore, the most appropriate activity level is machine hours.

OAR = $80,000 production overhead———————————————————————(0.01 x 500k) + (0.04 x 150k) + (0.02 x 250k) hours

= $80,000——————16,000 hours

= $5 per machine hourWe can now absorb these into the units of production:

Sky Bar Moon Egg Sun BarProduction overheads ($)= machine hours per unit x 0.05 0.20 0.10$5

This is the difficult part done. We can now quickly complete the cost card and answer the question:

Sky Bar Moon Egg Sun Bar$ $ $

Direct labour cost per unit 0.07 0.14 0.12Direct material cost per unit 0.17 0.19 0.16Production overhead per unit 0.05 0.20 0.10Full production cost per unit 0.29 0.53 0.38Selling price per unit 0.50 0.45 0.43Profit/ (loss) per unit 0.21 (0.08) 0.05


Outcome of Absorption Costing

Based on absorption costing, the Sky Bar and the Sun Bar are both profitable. However, the Moon Egg is loss making. Managers would need to consider the future of the Moon Egg. They may look at the possibility of increasing the selling price and/ or reducing costs. If this is not possible, they may make the decision to stop selling the product. However, this may prove to be the wrong decision because absorption costing does not always result in an accurate calculation of the fullproduction cost per unit. ABC can be a more accurate method of calculating the full production cost per unit and as a result should lead to better decisions.

Reasons for the development of ABC• Overheads driven by production in traditional manufacturingAs mentioned, absorption costing is based on the principal that production overheads are driven by the level of production. This is because the activity level in the OAR calculation can be units, labour hours or machine hours. These all increase as the level of production increases.

This was appropriate in the past because businesses only produced one simple product or a few simple and similar products, e.g. Cadbury originally produced one product only, the Cadbury Dairy Milk.

• Overheads were small in relation to other costs in traditional manufacturingIn addition, production overheads, such as machine depreciation, will have been a small proportion of overall costs. This is because production was more labour intensive and, as a result, direct costs would have been much higher than indirect costs. A rough estimate of the production overhead per unit was therefore fine.

• Overheads are a larger proportion of total costs in modern manufacturingManufacturing has become more machine intensive and, as a result, the proportion of production overheads, compared to direct costs, has increased. Therefore, it is important that an accurate estimate is made of the production overhead per unit.

• Complexity and diversity of products in modern manufacturingIn addition, the nature of manufacturing has changed. Many companies must now operate in a highly competitive environment and, as a result, the diversity and complexity of products has increased. For example, Cadbury now produces over 20 different chocolate products. Some products, such as the Cadbury Dairy Milk, are simple to produce. Other products, such as the Cadbury Cream Egg, are a lot more complicated to produce. As a result, it is no longer appropriate to assume that all production overheads are driven by the level of production. We need to take account of the increased complexity and diversity and consider what truly drives our production overheads…….. …………and so, ABC was created.

Calculating the full production cost per unit using ABC


There are five basic steps:

Step 1: Group production overheads into activities, according to how they are driven.

A cost pool is an activity which consumes resources and for which overhead costs are identified and allocated. For each cost pool, there should be a cost driver. The terms ‘activity’ and ‘cost pool’ are often used interchangeably.

Step 2: Identify cost drivers for each activity, i.e. what causes these activity costs to be incurred.

A cost driver is a factor that influences (or drives) the level of cost.

Step 3: Calculate an OAR for each activity

The OAR is calcuated in the same way as the absorption costing OAR. However, a separate OAR will be calcuated for each activity, by taking the activity cost and dividing by the cost driver information.

Step 4: Absorb the activity costs into the product

The activity costs should be absorbed back into the individual products.

Step 5: Calculate the full production cost and/ or the profit or loss.

Some questions ask for the production cost per unit and/ or the profit or loss per unit. Other questions ask for the total production cost and/ or the total profit or loss.

Illustration 2 ABCIn addition to the data from illustration 1, some supplementary data is now available for Saturn company:

$Machining costs 5,000Component costs 15,000Setup costs 30,000Packing costs 30,000

———Production overhead (as perillustration 1) 80,000

———

Cost driver data:Sky Bar Moon Egg Sun Bar

Labour hours per unit 0.001 0.01 0.005Machine hours per unit 0.01 0.04 0.02Number of production setups 3 1 26Number of components 4 6 20Number of customer orders 21 4 25


Required:Using ABC, calculate the full production cost per unit and the profit per unit for each product. Comment on the implications of the figures calculated.

Solution

Step 1: Group production overheads into activities, according to how they are driven.This has been done above. The $80,000 production overhead has been split into four different activities (cost pools).

Step 2: Identify cost drivers for each activity, i.e. what causes these activity costs to be incurred.

Activity Cost driverMachining costs Number of machine hoursComponent costs Number of componentsSetup costs Number of setupsPacking costs Number of customer orders

Advantages and disadvantages of ABC

ABC has a number of advantages:• It provides a more accurate cost per unit. As a result, pricing, sales strategy, performance management and decision making should be improved (see next section for detail).• It provides much better insight into what drives overhead costs.• ABC recognises that overhead costs are not all related to production and sales volume.• In many businesses, overhead costs are a significant proportion of total costs, and management needs to understand the drivers of overhead costs in order to manage the business properly. Overhead costs can be controlled by managing cost drivers.• It can be applied to derive realistic costs in a complex business environment.• ABC can be applied to all overhead costs, not just production overheads.• ABC can be used just as easily in service costing as in product costing.

Disadvantages of ABC:• ABC will be of limited benefit if the overhead costs are primarily volume related or if the overhead is a small proportion of the overall cost.• It is impossible to allocate all overhead costs to specific activities.• The choice of both activities and cost drivers might be inappropriate.• ABC can be more complex to explain to the stakeholders of the costing exercise.• The benefits obtained from ABC might not justify the costs.


Target costing

What is target costing?Target costing involves setting a target cost by subtracting a desired profit from a competitive market price. Real world users include Sony, Toyota and the Swiss watchmakers, Swatch.

In effect it is the opposite of conventional 'cost plus pricing'.

IllustrationMusic Matters manufactures and sells cds for a number of popular artists. At present, it uses a traditional cost-plus pricing system.

Cost-plus pricing systemSteps:(1) The cost of the cd is established first. This is $15 per unit.(2) A profit of $5 per unit is added to each cd.(3) This results in the current selling price of $20 per unit.

However, cost-plus pricing ignores:

The price that customers are willing to pay - pricing the cds too high could result in low sales volumes and profits.

The price charged by competitors for similar products - if competitor's are charging less than $10 per cd for similar cds then customers may decide to buy their cds from the competitor companies.

Cost control - the cost of the cd is established at $15 but there is little incentive to control this cost.

Music Matters could address the problems discussed above through the implementation of target costing:

(1) The first step is to establish a competitive market price. The company would consider how much customers are willing to pay and how much competitors are charging for similar products. Let's assume this is $15 per unit.

(2) Music Matters would then deduct their required profit from the selling price. The required profit may be kept at $5 per unit.

(3) A target cost is arrived at by deducting the required profit from the selling price, i.e. $15 - $5 = $10 per unit.

(4) Steps must then be taken to close the target cost gap from the current cost per unit of $15 per unit to the target cost of $10 per unit.


Summary of the steps used in deriving a target cost

Step 1 - Determine a product specification of which an adequate sales volume is estimated.

Step 2 - Set a selling price at which the organization will be able to achieved a desired market share.

Step 3 - Estimate the required profit based on return on sales or return on investments.

Step 4 - Calculate the target cost = target selling price – target profit (Step 2 less step 3)

Step 5 - Compile an estimated cost for the product based on the anticipated design specification and current cost levels.

Step 6 - Calculate the target cost gap = estimated cost – target cost (step 5 less step 4)

Step 7 - Make efforts to close the gap. This is more likely to be successful if efforts are made to ‘design out’ cost prior to production, rather than to ‘control out’ cost during the production phase.

Step 8 - Negotiate with the customer before making the decision about whether to go ahead with the project.

Activity 1A car manufacturer wants to calculate a target cost for a new car, the price of which will be set at $17,950. The company requires an 8% profit margin.

Calculate the target cost of the company. If the company required an 8% profit markup how would the target cost be different?

Activity 2LMN Ltd makes and sells two products, X and Y. Both products are manufactured through two consecutive processes assembly and finishing. Raw material is input at the commencement of the assembly process.

The following estimated information is available for the period ending 31 December 20X5:Product X Product Y

Production/sales (units) 12,000 7,200Selling price per unit $75 $90Direct material cost per unit $20 $20Direct labour cost per unit

- assembly $20 $28- finishing $12 $24

Product specific fixed costs $170,000 $90,000Company fixed costs = $50,000


LMN Ltd uses a minimum contribution/sales (C/S) ratio target of 25% when assessing the viability of a product. In addition, management wish to achieve an overall net profit margin of 12% on sales in this period in order to meet return on capital targets.

Required:Calculate the C/S ratio for each product and the overall net profit margin. Explain how target costing may be used in achieving the required returns.

Closing the target cost gap

The target cost gap is established in step 6 (above) of the summary target costing process.

Target cost gap = Estimated product cost – Target cost

It is the difference between what an organisation thinks it can currently make a product for, and what it needs to make it for, in order to make a required profit.

Alternative product designs should be examined for potential areas of cost reduction that will not compromise the quality of the products.

Questions that a manufacturer may ask in order to close the gap include:

Can any materials be eliminated, e.g. cut down on packing materials? Can a cheaper material be substituted without affecting quality? Can labour savings be made without compromising quality, for example, by using lower skilled

workers? Can productivity be improved, for example, by improving motivation? Can production volume be increased to achieve economies of scale? Could cost savings be made by reviewing the supply chain? Can part-assembled components be bought in to save on assembly time? Can the incidence of the cost drivers be reduced? Is there some degree of overlap between the product-related fixed costs that could be

eliminated by combining service departments or resources?

A key aspect of this is to understand which features of the product are essential to customer perceived quality and which are not. This process is known as ‘value analysis’. Attention should be focused more on reducing the costs of features perceived by the customer not to add value.

The difficulties of using target costing in service industriesTarget costing was introduced by major Japanese manufacturers for use in a manufacturing environment.

Service industries (e.g. banking, accountancy, travel) provide a less favourable environment for the use of target costing:


It is much more difficult to make service comparisons than product comparisons, making it harder to determine a market driven price in the first place.

The introduction of new products and services in service industries usually occurs far less frequently than in a manufacturing environment (e.g. Sony and Toyota introduce new models on a regular basis) and, in consequence, the equivalent of manufacturing design teams are rarely found in service industries.

Bought in materials are usually of modest significance so there is little scope for exerting pressure on external suppliers.

The major cost of any new product or service is salaries and unless lower cost delivery mechanisms (e.g. the internet) or radically different ways of working can be exploited there is limited scope for substantial cost reduction.

Illustration– Reducing labour costs

A key performance target for many banks is to reduce staff costs as a percentage of total bank costs.

The launch of first telephone banking and then internet banking for personal customers (both services enabling bank customers to access their bank accounts, transfer funds and pay bills on a 24hourbasis) has enabled the banks to vary the level of bank staff involvement in the provision of these services and to provide a relatively cost effective service.

Lifecycle costing

What is lifecycle costing?

Traditional costing techniques based around annual periods may give a misleading impression of the costs and profitability of a good.

Lifecycle costing: Is a concept which traces all costs to a product over its complete lifecycle from design to

cessation.

It recognises that for many products there are significant costs to be incurred in the early stages of its lifecycle. For example, design and development costs, setup costs and ongoing fixed costs that are committed at this stage.

The profitability of a product can be more accurately assessed by taking all of the costs into account.


The various cost of a product during its product life cycles from development through to its eventual withdrawal from the market are as follows:

(1) Research and developments:a. Designb. Testingc. Production process and equipment

(2) Purchasing of technical data required;(3) Training costs(4) Production costs(5) Distribution costs (transportation and handling)(6) Marketing costs (customer service and brand promotion)(7) Inventory costs (holding spare parts, warehousing and so on)(8) Retirement and disposal costs

The product life cycle can be divided into five phases:

(1) Development – The product has a research and development stage where costs are incurred but no revenue is generated.

(2) Introduction – The product is introduced to the market. Potential customers will be unaware of the product or service, and the organization may have to spend further advertising to bring the product or service to the attention of the market.

(3) Growth – The product gains a bigger market as demand builds up. Sales revenue increase and the product begins to make a profit.

(4) Maturity – Eventually, the growth in demand for the product will slow down and it will enter a period of relative maturity. It will continue to be profitable. The product may be modified or improved, as a means of sustaining its demand.

(5) Decline – At some stage, the market will have bought enough of the product and it will therefore reach ‘saturation point’. Demand will start to fall. Eventually, it will become a loss-maker and this is the time when the organization should decide to stop selling the product or service.


Service and project life cycles.A service organization will have services that have life cycles. The only difference is that the R&D stages will not exist in the same way and will not have the same impact on subsequent costs. The different processes that form the complete service are important, however, consideration should be given in advance as to how to carry them out and arrange them so as to minimize cost.

Customer life cyclesCustomers also have life cycles and an organization will wish to maximize the return from a customer over their life cycle. The aim is to extend the life cycles of a particular customer.

The implications of lifecycle costing

Pricing• Pricing decisions can be based on total lifecycle costs rather than simply the costs for the current period.

Decision making• In deciding to produce a product, a timetable of lifecycle costs helps show what costs need to be allocated to a product so that an organisation can recover its costs. If all costs cannot be recovered, it would not be wise to produce the product or service.

• Lifecycle costing allows an analysis of links between business functions, e.g. a decision taken now to reduce R&D costs may lead to a fall in sales in the future.

Performance management• Improved control many companies find that 90% of the product’s lifecycle costs are determined by decisions made in the development and launch stages. Focussing on costs after the product has


entered production results in only a small proportion of lifecycle costs being manageable. Lifecycle costing thus reinforces the importance of tight control over locked-in costs, such as R&D in the development stage.

• Improved reporting costs such as R&D and marketing are traditionally reported on an aggregated basis for all products and recorded as a period expense. Lifecycle costing traces these costs to individual products over their entire life cycles, to aid comparison with product revenues generated in later periods

Throughput accounting

Throughput accounting aims to make the best use of a scare resource (bottleneck) in a JIT environment.

Throughput is a measure of profitability and is defined by the following equation:

Throughput = sales revenue - direct material cost

The aim of throughput accounting is to maximise this measure of profitablity whilst simultaneously reducing operating expenses and inventory (money is tied up in inventory).

The goal is achieved by determining what factors prevent the throughput from being higher. This constraint is called a bottleneck, for example there may be a limited number of machine hours or labour hours.

In the short-term the best use should be made of this bottleneck. This may result in some idle time in non bottleneck resources and may result in a small amount of inventory being held so as not to delay production through the bottleneck.

In the long-term the bottleneck should be eliminated, for example a new, more efficient machine may be purchased. However, this will generally result in another bottleneck which must then be addressed.

Main assumptions:

The only totally variable cost in the short-term is the purchase cost of raw materials that are bought from external suppliers.

Direct labour costs are not variable in the short-term. Many employees are salaried and even if paid at a rate per unit, are usually guaranteed a minimum weekly wage.

Throughput calculation


The Throughput Accounting Ratio (TPAR)

When there is a bottleneck resource, performance can be measured in terms of throughput for each unit of bottleneck resource consumed.

There are three interrelated ratios:

1. Throughput (return) per Factory Hour = Throughput . Product's time on the bottleneck resource

2. Total factory cost = Cost per Factory Hour . Total bottleneck resource time available

3. Throughput Accounting Ratio = Return per factory hour Cost per factory hour

Note: the total factory cost is the fixed production cost, including labour. The total factory cost may be referred to as 'operating expenses'.

ActivityX Limited manufactures a product that requires 1.5 hours of machining. Machine time is a bottleneck resource, due to the limited number of machines available. There are 10 machines available, and each machine can be used for up to 40 hours per week.

The product is sold for $85 per unit and the direct material cost per unit is $42.50. Total factory costs are $8,000 each week.

Calculate(a) the return per factory hour(b) the TPAR.

Interpretation of TPAR

TPAR>1 would suggest that throughput exceeds operating costs so the product should make a profit. Priority should be given to the products generating the best ratios.

TPAR<1 would suggest that throughput is insufficient to cover operating costs, resulting in a loss.

Criticisms of TPAR:

It concentrates on the shortterm, when a business has a fixed supply of resources (i.e. a bottleneck) and operating expenses are largely fixed. However, most businesses can't produce products based on the short term only.


It is more difficult to apply throughput accounting concepts to the longerterm, when all costs are variable, and vary with the volume of production and sales or another cost driver. The business should consider this longterm view before rejecting products with a TPAR < 1.

In the longerterm an ABC approach might be more appropriate for measuring and controlling performance.

Improving the TPAR

Options to increase the TPAR include the following: increase the sales price for each unit sold, to increase the throughput per unit; reduce material costs per unit (e.g. by changing materials or switching suppliers), to increase

the throughput per unit; reduce total operating expenses, to reduce the cost per factory hour; improve the productivity of the bottleneck, e.g. the assembly workforce or the bottleneck

machine, thus reducing the time required to make each unit of product. Throughput per factory hour would increase and therefore the TPAR would increase.

Calculation in multiproduct decision making

Throughput accounting may be applied to a multiproduct decision making problem in the same way as conventional key factor analysis (this will be dealt with when examining decision making).

The usual objective in questions is to maximise profit. Given that fixed costs are unaffected by the production decision in the short run, the approach should be to maximise the throughput earned.

Step 1: identify the bottleneck constraint.Step 2: calculate the throughput per unit for each product.Step 3: calculate the throughput per unit of the bottleneck resource for each product.Step 4: rank the products in order of the throughout per unit of the bottleneck resource.Step 5: allocate resources using this ranking and answer the question.

Environmental accountingThe accounting profession is often accused of being too concerned with the numbers and not concerned enough about the more intangible aspects of a company's operations. Environmental accounting, also called social accounting, is a type of accounting that attempts to measure both the social and environmental impacts of business decisions.


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HistoryEnvironmental accounting started receiving attention during the energy crisis in the 1970s. Although the issue was given consideration for a time, the energy crises ended and the 1980s ushered in a new era of economic prosperity. The practice of environmental accounting faded into the background before any standards for measuring economic impacts were developed. Legislation and agreement on how to account for environmental factors and what factors should be counted were difficult to come by. In the 1990s, a large upswing in environmental protection activism brought environmental accounting back into the consciousness of both consumers and businesses.

BenefitsEnvironmental accounting allows companies to take all costs, rather than just company expenses, into account when making production and pricing decisions. The depletion of natural resources involves more costs than the monetary ones that appear on company financial statements. Examining our use of and affect on natural resources and the environment around us increases our awareness of the way in which we treat that environment. This awareness allows us to make decisions that will keep our drinking water cleaner, decrease air pollution and manage dwindling natural resources.

TypesThere are several relationships that can be examined using environmental accounting. Environmental accounting can be used to monitor our use of minerals and natural oil. We can also examine the costs of water and air pollution. Animal habitats and the farm land needed to produce food can also be examined to determine what impact our activities are having. Opportunity costs are another cost category which can be examined with an environmental and social accounting. Opportunity costs refer to what we do without in order to have something else. For example, the pieces of steel we use to make beams for building construction cannot also be used to make a new car. The health and happiness of employees and other stakeholders can also be weighed when making decisions.

ConsiderationsAlthough environmental accounting has many benefits and is a good idea in theory, it can be difficult to put into practice. When instituting environmental and social accounting practices, it is necessary to remember that many of the costs calculated in environmental accounting are intangible and difficult to measure. The company must make sure it applies the same standards and assigns the same values to resources across the organization. Some values are subjective and vary with individuals, so it can be difficult to come to a consensus on what to measure and how. Social accounting can also be challenging, as social values sometimes change quickly.

PotentialEnvironmental and social accounting have the potential to raise awareness about public concerns. This can help us substantially reduce pollution, protect wildlife habitats and save farmland from development. Environmental and social costing can also help companies to set product and service prices at levels that take into account the true costs. This means that consumers will have to pay more for a product whose production results in a lot of air pollution or whose manufacture required the development of manufacturing plant facilities on farm land. If prices are set in this manner, environmental accounting could possibly help make environmentally costly products more expensive to purchase and green products less so. The goal is to make damaging the environment more costly and thereby less profitable while increasing awareness about the environmental and social impacts of the products we produce and consume.


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F5 handout 1 for Dec 2011