1

PowerPointPowerPoint Presentation by Presentation by

Gail B. WrightGail B. WrightProfessor Emeritus of AccountingProfessor Emeritus of AccountingBryant UniversityBryant 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 ACCOUNTING

8th EDITION

BY

HANSEN & MOWEN

1 INTRODUCTION

17 ENVIRONMENTAL COST MANAGEMENT

STUDENT EDITION

2

1. Discuss the importance of measuring environmental costs.

2. Explain how environmental costs are assigned to products & processes.

3. Describe the life-cycle cost assessment model.

4. Compare & contrast activity- & strategic-based environmental control.

LEARNING OBJECTIVESLEARNING OBJECTIVES

3

Why is it important to measure environmental

costs?

Awareness of environmental costs is important because

environmental regulations & fines have increased.

LO 1

fines

4

ENVIRONMENTAL QUALITY COST MODEL

Looks at costs and their impact for damage done to the environment. In addition to direct costs, there are costs to preventing environmental degradation.

Looks 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

5

ENVIRONMENTAL DETECTION COSTS

Are costs to determine compliance with appropriate environmental standards including:Regulatory government lawsVoluntary standards (ISO 14001)Management’s environmental policies

Are costs to determine compliance with appropriate environmental standards including:Regulatory government lawsVoluntary standards (ISO 14001)Management’s environmental policies

LO 1

Management’s environmental policies

6

What are environmental external failure costs?

Environmental external failure costs are costs of activities

performed after discharging contaminants & waste into the

environment.

LO 1

7

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

8

Can environmental failure costs be reduced?

Yes! Investing more in prevention & detection activities will

reduce environmental failure costs.

LO 1

prevention

9

ENVIRONMENTAL COSTING: Definition

ENVIRONMENTAL COSTING: Definition

Full environmental costing assigns both private & societal costs to products. Private costs

are caused by internal processes.

LO 2

10

FORMULA: Cadmium Example

Costs are assigned proportionately when multiple products are produced.

LO 2

External failure cost:

= Total failure cost ÷ Units produced

= $150,000 / 20,000 = $7.50 per unit$7.50 per unit

11

LIFE-CYCLE ASSESSMENT: Definition

LIFE-CYCLE ASSESSMENT: Definition

Identifies environmental consequences of a product

through its entire life cycle & searches for improvements.

LO 3

12

ASSESSMENT STAGES

3 formal stages Inventory analysis

Types, quantities inputs neededEnvironmental releases

Impact analysisEffects of competing designsRelative ranking of effects

Improvement analysisObjective: to reduce environmental impacts

LO 3

13

ENVIRONMENTAL PERSPECTIVE

5 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 recycle

LO 4

14

Are environmental activities non-value-added?

Because environmental pollution is equivalent to economic

inefficiency, all failure activities are non-value-added.

LO 4

15

ENVIRONMENTAL COST TREND GRAPH

LO 4

EXHIBITEXHIBIT 17-1017-10

Costs as a percentage of sales trend downward over time.

%

16

BAR GRAPH FOR TRENDS

LO 4

EXHIBITEXHIBIT 17-1117-11

Emissions trend downward over time.

%

17

HAZARDOUS WASTE PIE CHART

LO 4

EXHIBITEXHIBIT 17-1217-12

How do pie charts differ from other graphs in the information they provide?

18

THE ENDTHE END

CHAPTER 17