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Environmental Cost Management - Part 3

This document discusses environmental cost management and activity-based environmental costing. It begins by outlining four learning objectives, including comparing and contrasting activity- and strategic-based environmental control. It then discusses how a strategic-based environmental management system can improve environmental performance using a Balanced Scorecard framework. Specific objectives for an environmental perspective are outlined, and it notes companies need measures to evaluate if these objectives are being met. Finally, it discusses the role of activity management in identifying environmental costs and classifying activities as value-added or non-value-added, and provides examples of financial measures like cost trends that can be used to track environmental performance over time.

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34 views

Environmental Cost Management - Part 3

This document discusses environmental cost management and activity-based environmental costing. It begins by outlining four learning objectives, including comparing and contrasting activity- and strategic-based environmental control. It then discusses how a strategic-based environmental management system can improve environmental performance using a Balanced Scorecard framework. Specific objectives for an environmental perspective are outlined, and it notes companies need measures to evaluate if these objectives are being met. Finally, it discusses the role of activity management in identifying environmental costs and classifying activities as value-added or non-value-added, and provides examples of financial measures like cost trends that can be used to track environmental performance over time.

Uploaded by

SnoopyJack
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 16

ENVIRONMENTAL

COST
MANAGEMENT

1 INTRODUCTION
1
LEARNING
LEARNING OBJECTIVES
OBJECTIVES

After studying this


chapter, you should be
able to:

2
LEARNING
LEARNING OBJECTIVE
OBJECTIVE

Compare & contrast


activity- & strategic-
based environmental
control.

3
LO 4

• A strategic-based environmental management


system provides an operational framework for
improving environmental performance.

• The Balanced Scorecard framework supplies


objectives and measures that are integrated to
achieve the overall goal of improving
environmental performance

4
LO 4

ENVIRONMENTAL PERSPECTIVE

• 5 objectives for environmental perspective


• Minimize use of raw or virgin materials
• Minimize use of hazardous materials
• Minimize energy requirements for production, use
of product
• Minimize release of solid, liquid, gaseous residues
• Maximize opportunities to recycle

5
LO 4

OBJECTIVES & PERSPECTIVES


Companies need
measures to
evaluate whether
objectives of the
environmental
perspective are
being met.

6
The role of activity management

• Identifying environmental activities and assessing their costs are


prerequisites for activity-based environmental costing. Knowing
the environmental costs and what products and processes are
causing them is absolutely essential as a first step for control.
Environmental activities must be classified as value-added and
non-value-added.
• Non-value-added environmental costs are the costs of non-
value-added activities. These costs represent the benefit that
can be captured by improving environmental performance.
• The key to capturing these benefits is identifying root causes for
non-value-added activities and then redesigning products and
processes to minimize and ultimately eliminate these non-value-
added activities.

7
LO 4

Are environmental activities


non-value-added?

Because environmental pollution


is equivalent to economic
inefficiency, all failure activities
are non-value-added.

8
Design for the environment
• This special design approach is called design
for the environment. It touches products,
processes, materials, energy, and recycling.
• The entire product life cycle and its effects
on the environment must be considered.
• Redesign of a process can eliminate the
production of such residues.

9
Financial measures
• Environmental improvements ought to
produce significant and beneficial financial
consequences. This means that the firm has
achieved a favorable trade-off among failure
activities and prevention activities.
• If ecoefficient decisions are being made,
then total environmental costs should
diminish as environmental performance
improves.

10
Financial measures
• Environmental cost trends are an important
performance measure.
• One possibility is preparing a non-value-added
environmental cost report for the current period
and comparing these costs with the non-value-
added costs of the prior period.
• Another possibility is computing total
environmental costs as a percentage of sales and
tracking this value over several periods.

11
12
LO 4

ENVIRONMENTAL COST TREND


GRAPH
Costs as a
percentage of sales
trend downward
% over time.

13
LO 4

BAR GRAPH FOR TRENDS


Emissions trend
downward over
time.

14
LO 4

HAZARDOUS WASTE PIE CHART


Pie chart depicts
proportional
hazardous
wastes.

15
REFERENCE
Hansen, D.R. and M. Mowen. 2007. Management
Accounting. 8th Edition. New York: Thompson Learning.

16

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