Part 3 - Environment Management Accounting

Question 1

Activity based costing

Answer 1

• Allocates costs to products based on the activities which actually drive the cost to better allocate the costs.
• Allocate waste treatment overhead costs on the basis of revenue, which is arbitrary
• Charging these costs on the basis of the activities which drive them, which are research hours and volume of waste by-products for R&D costs and waste treatment costs respectively, will give a more accurate costing

Question 2

Life cycle costing

Answer 2

• Wrong current basis: Not consider costs which occur before production commences or after it ceases
• Recalculate and evaluate: Calculate all cost
• Benefit of life cycle costing: Help to better evaluate its investment decision, determine appropriate prices and generate an acceptable margin

Question 3

Environmental management accounting (EMA)

Answer 3

• involve measuring the physical movements of inputs to a production process, such as materials and energy, and outputs such as waste.
• They lie hidden within overheads.
• EMA allows an organisation to identify environment related costs and take steps to control them

Question 4

Conventional costs - EMA

Answer 4

These costs include the cost of energy and raw materials

Question 5

Contingent costs - EMA

Answer 5

These are costs which are incurred in the future, for example, the decommissioning costs of plant used to manufacture Red

Question 6

Reputation costs - EMA

Answer 6

Reputation costs are incurred where an organisation acts in a way which may cause harm to the environment, and include sales lost as a result of loss of reputation.