Cost Management

ACCOUNTING AND CONTROL

HANSEN & MOWEN

16-1
 Environmental Costs:
16
Measurement and Control

16-2
Defining, Measuring, and Controlling
Environmental Costs 1

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

16-3
Defining, Measuring, and Controlling
Environmental Costs 1

The Ecoefficiency Paradigm

(1) Reduce the consumption of

resources
(2) Reduce the environmental impact
(3) Increase product value
(4) Reduce environmental liability

16-4
Defining, Measuring, and Controlling
Environmental Costs 1
Ecoefficiency Relationships

continued
16-5
Defining, Measuring, and Controlling
Environmental Costs 1
Ecoefficiency Relationships

continued

16-6
Defining, Measuring, and Controlling
Environmental Costs 1

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
Defining, Measuring, and Controlling
Environmental Costs 1
Classification of Environmental Costs by 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
Defining, Measuring, and Controlling
Environmental Costs 1
Classification of Environmental Costs by 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
Defining, Measuring, and Controlling
Environmental Costs 1
Classification of Environmental Costs by Activity

Internal Failure Activities

Operating pollution control equipment
Treating and disposing of toxic waste
Maintaining pollution equipment
Licensing facilities for producing
contaminants
Recycling scrap

16-10
Defining, Measuring, and Controlling
Environmental Costs 1
Classification of Environmental Costs by 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

16-11
Defining, Measuring, and Controlling
Environmental Costs 1
Classification of Environmental Costs by Activity

External Failure Activities

Receiving medical care due to polluted
air
Losing employment because of
Societal
contamination
costs
Losing a lake for recreational use
Damaging ecosystems from solid waste
disposal

16-12
Defining, Measuring, and Controlling
Environmental Costs 1
Environmental Cost Report

16-13
Defining, Measuring, and Controlling
Environmental Costs 1
Relative Distribution: Environmental Costs

16-14
Defining, Measuring, and Controlling
Environmental Costs 1
Environmental Financial Statement

continued

16-15
Defining, Measuring, and Controlling
Environmental Costs 1
Environmental Financial Statement

16-16
Environmental Costing 2

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

16-17
Environmental Costing 2
ABC Environmental Costing

16-18
Life-Cycle Cost Assessment 3

Life cycle assessment

identifies the environmental
consequences of a product
through its entire life cycle and
then searches for
opportunities to obtain
environmental improvements.

16-19
Life-Cycle Cost Assessment 3
Raw
Controlled by Supplier
Product-Life Materials
Cycle Stages

Production

Controlled by
Manufacturer

Packaging

Product Use
Recycling and Disposal
Maintenance

Controlled by Customer 16-20

Life-Cycle Cost Assessment 3
Assessment Stages
(1) Inventory analysis
(2) Impact analysis
(3) Improvement analysis

16-21
Life-Cycle Cost Assessment 3

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.

16-22
Life-Cycle Cost Assessment 3
Inventory Analysis

continued

16-23
Life-Cycle Cost Assessment 3
Inventory Analysis

16-24
Life-Cycle Cost Assessment 3

Impact analysis
assesses the
environmental effects of
competing designs and
provides a relative
ranking of those effects.

16-25
Life-Cycle Cost Assessment 3

Cost assessment
determines the financial
consequences of the
environmental impacts
identified in the inventory
and improvement steps
of life-cycle assessment.

16-26
Life-Cycle Cost Assessment 3

Improvement analysis has

the objective of reducing the
environmental impacts
revealed by the inventory
and impact steps.

16-27
Strategic-Based Environmental
Responsibility Accounting 4

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

16-28
Strategic-Based Environmental
Responsibility Accounting 4
Objectives and Measures: Environmental Perspective

16-29
Strategic-Based Environmental
Responsibility Accounting 4
Non-Value-Added Cost Trends: Environmental Costs

16-30
Strategic-Based Environmental
Responsibility Accounting 4
Environmental Cost Trend Graph

16-31
Strategic-Based Environmental
Responsibility Accounting 4
Bar Graph for Trend Analysis
CFC Emissions
100

80

60

40

20

0
2004 2005 2006 2007
16-32
Pounds emitted
Strategic-Based Environmental
Responsibility Accounting 4
Hazardous Waste Management Pie Chart

16-33
 End of
Chapter 16

16-34