PERFORMANCE MANAGEMENT(PM)

JOJO TOMY ACCA

INTRODUCTION
• Environmental management accounting (EMA)
The generation and analysis of both financial and non‐financial information in order to
support environment management process.
• Importance of Environmental costs :
1. Identifying environmental costs associated with individual products and services can
assist with pricing decisions
2. Ensuring compliance with regulatory standards to prevent legal repercussions
3. Potential for cost savings
4. Government support
5. Reputation and goodwill

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
 Conventional Costs
Eg: raw material

Image and relationship costs Potentially hidden costs

Environmental
Eg: cost for preparation of
Environmental Report
Cost Eg: within overheads

Contingent costs
Eg: Clean-up costs

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
Identifying Environmental Costs:
Some of the typical environmental costs are:
• Consumables and raw materials
• Transport and travel
• Waste disposal
• Energy consumption
• Recycled material
• Water usage
• Pollution

Note:The majority of environmental costs are already captured within accounting

system. It is often difficult to allocate them to a particular product or service.
PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
Accounting for Environmental Costs(Methods)
1. Input/output analysis
• This method operates on the principal that what comes in must go out.
Output is split across sold and stored goods and waste.
• Measuring these categories in physical quantities and monetary terms, forces
a business to focus on environmental costs.

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
2. Flow cost accounting
• Material flows through an organization are divided into three categories
➢Material
➢ System and delivery
➢Disposal
• The values and costs of each flow are calculated. This method focuses on
reducing costs by questioning them and having a positive effect on the
environment.

3. Environmental Life-cycle costing

• Environmental costs are considered from the design stage right up to the last
stage costs such as decommissioning and waste removal etc.
• This may influence the design of the product itself, saving on future costs.

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA
4. Environmental activity-based costing
• ABC allocates internal costs to cost centres and cost drivers on the basis of the
activities that give rise to the costs.
• Two costs are relevant:
➢ Environment -related costs such as costs relating to a sewage plant or an
incinerator are attributed to joint environmental cost centers.
➢ Environmental -driven costs such as increased depreciation or higher
staff wages are allocated to general overheads.

PERFORMANCE MANAGEMENT(PM)
JOJO TOMY ACCA