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Which TWO of the following statements about the advantages of using Activity-based
costing for Environmental Management Accounting are correct?
• Higher environmental costs can be reflected in higher prices
• Cost savings achieved through environmental policies can be measured
• It is simple to determine the environmental costs and cost drivers
• It considers all environmental effects of the company’s actionsThe first 2 statements are true. Sir can you explain the reason?
This question is more of a test of ABC than just environmental accounting.
For the first statement, ABC charges costs more ‘fairly’ between different products. Having a more realistic cost per unit enables more sensible selling prices which take into account the environmental costs.
For the second statement, using ABC forces the company to decide what is causing the overheads (including environmental costs). Knowing what is causing the costs enables the company to act more efficiently and therefore measure and reduce the costs.
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