Submitted by: Muhammad Abdullah Waseem

Reg NO# L1F20BSAF0171

Section: b

Subject: performance management

Assignment# 01

Submitted to: Prof. Ghulam Mustafa

 Environmental costing

These are costs connected with the actual or potential deterioration of natural assets due to
economic activities. Environmental accounting, also called social accounting, is a type of
accounting that attempts to measure both the social and environmental impacts of business
decisions. Environmental Accounting (EA) can be considered either a subset or superset of
accounting proper.

Environmental costs can include costs to:

 Clean up or remediate contaminated sites,

 Environmental fines
 Penalties and taxes,
 Purchase of pollution prevention technologies and
 Waste management costs.

Categories: Environmental cost can be split into two main categories which are internal
costing and external costing.

Internal costing:
These are costs that directly impact on the income statement of a company. The internal cost
refers to the cost required by manufacturing or purchasing an item and it includes material cost,
labor cost, expenses, subcontract processing cost, and overhead cost.

External costs:
An external cost is the cost incurred by an individual, firm or community as a result of an
economic transaction which they are not directly involved in. External costs, These are costs that
are imposed on society at large, but not borne by the company that generates the cost in the first
instance.

For example,
  carbon emissions
 usage of energy and water
 forest degradation
 health care costs
 social welfare costs

However, governments are becoming increasingly aware of these external costs and are using
taxes and regulations to convert them to internal costs. For example, companies might have to
have tree replacement programmers if they cause forest degradation, or they receive lower tax
allowances on vehicles that cause a high degree of harm to the environment. On top of this, some
companies are voluntarily converting external costs to internal costs.

Controlling environmental costs: As we have already discussed, environmental costs will vary
greatly from business to business and, to be honest, a lot of the environmental costs that a large,
highly industrialized business will incur will be difficult for the average person to understand,
since that person won’t have a detailed knowledge of the industry concerned.

 waste and effluent disposal

 water consumption
 energy
 transport and travel
 Consumables and raw materials.

Flow cost accounting

This technique uses not only material flows but also the organizational structure. It makes
material flows transparent by looking at the physical quantities involved, their costs and their
value. It divides the material flows into three categories: material, system and delivery and
disposal. The values and costs of each of these three flows are then calculated. The aim of flow
cost accounting is to reduce the quantity of materials which, as well as having a positive effect
on the environment, should have a positive effect on a business’ total costs in the long run.

Activity-based costing

ABC allocates internal costs to cost centers and cost drivers on the basis of the activities that
give rise to the costs. In an environmental accounting context, it distinguishes between
environment-related costs, which can be attributed to joint cost centres, and environment driven
costs, which tend to be hidden on general overheads.

Lifecycle costing

Within the context of environmental accounting, lifecycle costing is a technique which requires
the full environmental consequences, and, therefore, costs, arising from production of a product
to be taken account across its whole lifecycle, literally ‘from cradle to grave’.
Why are environmental costs important to the management accountant? •

Identifying environmental costs associated with individual products, services or processes helps
with correct product or service pricing. Saving energy generally leads to cost savings. Poor
environmental behavior can result in fines, increased liability to environmental taxes and damage
to the business’s reputation