Chapter 16 Environmental Cost

Cost Management
ACCOUNTING AND CONTROL
HANSEN & MOWEN
16-1
Environmental Costs:
Measurement and Control
16
16-2
Defining, Measuring, and Controlling

Environmental Costs
Ecoefficiency essentially
maintains that organizations
can produce more useful
goods and services while
simultaneously reducing
negative environmental
impacts, resource
consumption, and costs.
16-3

Environmental Costs
The
The Ecoefficiency
Ecoefficiency Paradigm
Paradigm
(1) Reduce the consumption of
resources
(2) Reduce the environmental impact
(3) Increase product value
(4) Reduce environmental liability
16-4

Environmental Costs
Ecoefficiency
EcoefficiencyRelationships
Relationships
continued
16-5

Environmental Costs
Ecoefficiency
EcoefficiencyRelationships
Relationships
continued
16-6

Environmental Costs
Environmental costs are costs that are incurred

because poor environmental quality exists or may
exist.
Environmental costs
can be classified in
four categories:
prevention costs,
detection costs,
internal failure costs,
and external failure
costs.
16-7

Environmental Costs
Classification
Classificationof
ofEnvironmental
EnvironmentalCosts
Costsby
byActivity
Activity
Prevention Activities
Evaluating and selecting suppliers
Evaluating and selecting pollution
control equipment
Designing processes
Designing products
Carrying out environmental studies
Auditing environmental risks
Developing environmental management
systems
Recycling products
Obtaining ISO 14001 certification
16-8

Environmental Costs
Classification
Classificationof
ofEnvironmental
EnvironmentalCosts
Costsby
byActivity
Activity
Detection Activities
Auditing environmental activities
Inspecting products and processes
Developing environmental performance
measures
Testing for contamination
Verifying supplier environmental
performance
Measuring contamination levels
16-9

Environmental Costs
Classification
Classificationof
ofEnvironmental
EnvironmentalCosts
Costsby
byActivity
Activity
Internal Failure Activities
Operating pollution control equipment
Treating and disposing of toxic waste
Maintaining pollution equipment
Licensing facilities for producing
contaminants
Recycling scrap
16-

Environmental Costs
Classification
Classificationof
ofEnvironmental
EnvironmentalCosts
Costsby
byActivity
Activity
External Failure Activities
Cleaning up a polluted lake
Cleaning up oil spills
Cleaning up contaminated soil
Settling personal injury claims
(environmentally related)
Restoring land to natural state
Losing sales due to poor environmental
reputation
continued
16-

Environmental Costs
Classification
Classificationof
ofEnvironmental
EnvironmentalCosts
Costsby
byActivity
Activity
External Failure Activities
Receiving medical care due to polluted
air
Losing employment because of
contamination
Losing a lake for recreational use
Damaging ecosystems from solid waste
disposal
Societal
costs
16-

Environmental Costs
Environmental
EnvironmentalCost
CostReport
Report
16-

Environmental Costs
Relative
RelativeDistribution:
Distribution: Environmental
EnvironmentalCosts
Costs
16-

Environmental Costs
Environmental
EnvironmentalFinancial
FinancialStatement
Statement
continued
16-

Environmental Costs
Environmental
EnvironmentalFinancial
FinancialStatement
Statement
16-
Environmental Costing
Unit-Based Environmental Cost Assignments

Environmental costs are separated into a cost
pool
Costs are assigned to individual products using
unit-level drivers
Best for a homogeneous product setting
16-
Environmental Costing
ABC
ABCEnvironmental
EnvironmentalCosting
Costing
16-
Life-Cycle Cost Assessment
Life cycle assessment

identifies the environmental
consequences of a product
through its entire life cycle and
then searches for
opportunities to obtain
environmental improvements.
16-
Raw
Raw
Materials
Materials
Controlled by Supplier
Product-Life
Product-Life
Cycle
Cycle Stages
Stages
Production
Production
Controlled by
Manufacturer
Packaging
Packaging
Recycling
Recycling
ProductUse
Use
Product
and
and
Maintenance
Maintenance
Controlled by Customer
Disposal
Disposal
16-
Assessment Stages
(1)
Inventory analysis
(2)
Impact analysis
(3)
Improvement analysis
16-
Inventory analysis
specifies the types and
quantities of materials
and energy inputs
needed and the
resulting environmental
releases in the form of
solid, liquid, and
gaseous residues.
16-
Inventory
InventoryAnalysis
Analysis
continued
16-
Inventory
InventoryAnalysis
Analysis
16-
Impact analysis
assesses the
environmental effects of
competing designs and
provides a relative
ranking of those effects.
16-
Cost assessment
determines the financial
consequences of the
environmental impacts
identified in the inventory
and improvement steps
of life-cycle assessment.
16-
Improvement analysis has

the objective of reducing the
environmental impacts
revealed by the inventory
and impact steps.
16-
Strategic-Based Environmental
Responsibility Accounting
Five core objectives for the environmental

perspectives:
1) Minimize hazardous materials
2) Minimize raw or virgin materials
3) Minimize energy requirements
4) Minimize the release of residues
5) Maximize opportunities to recycle
16-
Objectives
Objectivesand
andMeasures:
Measures: Environmental
EnvironmentalPerspective
Perspective
16-
Non-Value-Added
Non-Value-AddedCost
CostTrends:
Trends: Environmental
EnvironmentalCosts
Costs
16-
Environmental
EnvironmentalCost
CostTrend
TrendGraph
Graph
16-
Bar
BarGraph
Graphfor
forTrend
TrendAnalysis
Analysis
CFC Emissions
100
80
60
40
20
0
2004
Pounds emitted
2005
2006
2007
16-
Hazardous
HazardousWaste
WasteManagement
ManagementPie
PieChart
Chart
16-
End of
Chapter 16
16-

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Cost Management

ACCOUNTING AND CONTROL

HANSEN & MOWEN

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Environmental costs are costs that are incurred

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Defining, Measuring, and Controlling

Unit-Based Environmental Cost Assignments

Life-Cycle Cost Assessment

Life cycle assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Life-Cycle Cost Assessment

Improvement analysis has

Five core objectives for the environmental

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