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HANSEN & MOWEN
Cost ManagementACCOUNTING AND CONTROL
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Environmental Costs:Measurement and Control
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Ecoefficiencyessentiallymaintains that organizations
can produce more useful
goods and services while
simultaneously reducing
negative environmental
impacts, resource
consumption, and costs.
Defining, Measuring, and Controlling
Environmental Costs 1
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The Ecoefficiency Paradigm
(1) Reduce the consumption of
resources
(2) Reduce the environmental impact
(3) Increase product value
(4) Reduce environmental liability
Defining, Measuring, and Controlling
Environmental Costs 1
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Ecoefficiency Relationships
Defining, Measuring, and Controlling
Environmental Costs 1
continued
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Ecoefficiency Relationships
Defining, Measuring, and Controlling
Environmental Costs 1
continued
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Environmental costsare costs that are incurredbecause poor environmental quality exists or mayexist.
Defining, Measuring, and Controlling
Environmental Costs 1
Environmental costscan be classified infour categories:prevention costs,detection costs,
internal failure costs,and external failurecosts.
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Classification of Environmental Costs by Activity
Defining, Measuring, and Controlling
Environmental Costs 1
Prevention Activities
Evaluating and selecting suppliers
Evaluating and selecting pollution
control equipmentDesigning processes
Designing products
Carrying out environmental studies
Auditing environmental risks
Developing environmental management
systems
Recycling products
Obtaining ISO 14001 certification
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Classification of Environmental Costs by Activity
Defining, Measuring, and Controlling
Environmental Costs 1
Detection Activities
Auditing environmental activities
Inspecting products and processes
Developing environmental performancemeasures
Testing for contamination
Verifying supplier environmental
performance
Measuring contamination levels
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Classification of Environmental Costs by Activity
Defining, Measuring, and Controlling
Environmental Costs 1
Internal Failure Activities
Operating pollution control equipment
Treating and disposing of toxic waste
Maintaining pollution equipmentLicensing facilities for producing
contaminants
Recycling scrap
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Classification of Environmental Costs by Activity
Defining, Measuring, and Controlling
Environmental Costs 1
External Failure Activities
Cleaning up a polluted lake
Cleaning up oil spills
Cleaning up contaminated soilSettling personal injury claims
(environmentally related)
Restoring land to natural state
Losing sales due to poor environmental
reputation
continued
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Classification of Environmental Costs by Activity
Defining, Measuring, and Controlling
Environmental Costs 1
External Failure Activities
Receiving medical care due to polluted
air
Losing employment because ofcontamination
Losing a lake for recreational use
Damaging ecosystems from solid waste
disposal
Societalcosts
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Environmental Cost Report
Defining, Measuring, and Controlling
Environmental Costs 1
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Relative Distribution: Environmental Costs
Defining, Measuring, and Controlling
Environmental Costs 1
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Environmental Financial Statement
Defining, Measuring, and Controlling
Environmental Costs 1
continued
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Environmental Financial Statement
Defining, Measuring, and Controlling
Environmental Costs 1
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Unit-Based Environmental Cost Assignments
Environmental costs are separated into a cost
pool
Costs are assigned to individual products usingunit-level drivers
Best for a homogeneous product setting
Environmental Costing 2
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ABC Environmental Costing
Environmental Costing 2
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Life cycle assessmentidentifies the environmental
consequences of a product
through its entire life cycle andthen searches for
opportunities to obtain
environmental improvements.
Life-Cycle Cost Assessment 3
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16-20Controlled by Customer
DisposalRecycling
Product Use
and
Maintenance
Packaging
Controlled by Supplier
Controlled by
Manufacturer
Production
Product-Life
Cycle Stages
Raw
Materials
Life-Cycle Cost Assessment 3
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Assessment Stages(1) Inventory analysis
(2) Impact analysis
(3) Improvement analysis
Life-Cycle Cost Assessment 3
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Inventory analysisspecifies the types and
quantities of materials
and energy inputs
needed and the
resulting environmental
releases in the form of
solid, liquid, and
gaseous residues.
Life-Cycle Cost Assessment 3
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Inventory Analysis
Life-Cycle Cost Assessment 3
continued
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Inventory Analysis
Life-Cycle Cost Assessment 3
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Impact analysisassesses theenvironmental effects ofcompeting designs andprovides a relativeranking of those effects.
Life-Cycle Cost Assessment 3
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Cost assessmentdetermines the financialconsequences of theenvironmental impactsidentified in the inventoryand improvement stepsof life-cycle assessment.
Life-Cycle Cost Assessment 3
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Improvement analysishasthe objective of reducing theenvironmental impactsrevealed by the inventory
and impact steps.
Life-Cycle Cost Assessment 3
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Five core objectives for the environmentalperspectives:
1) Minimize hazardous materials
2) Minimize raw or virgin materials
3) Minimize energy requirements4) Minimize the release of residues
5) Maximize opportunities to recycle
4Strategic-Based Environmental
Responsibility Accounting
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Objectives and Measures: Environmental Perspective
4Strategic-Based Environmental
Responsibility Accounting
S i B d E i l
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4Strategic-Based Environmental
Responsibility Accounting
Non-Value-Added Cost Trends: Environmental Costs
St t i B d E i t l
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4Strategic-Based Environmental
Responsibility Accounting
Environmental Cost Trend Graph
St t i B d E i t l
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2004 2005 2006 2007
Pounds emitted
CFC Emissions
Bar Graph for Trend Analysis
4Strategic-Based Environmental
Responsibility Accounting
0
20
40
60
80
100
St t i B d E i t l
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Hazardous Waste Management Pie Chart
4Strategic-Based Environmental
Responsibility Accounting
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End of
Chapter 16