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Hi,
I would just like a clarification on the two types of environment costs ABC identifies.Is environment related costs the costs related to activities that are done to limit the environmental impact (eg. sewage plants and incinerators), while environment-driven costs are the costs related to activities that are the day to day operations of the company, which is the root cause of any environmental impacts (eg. labour, machinery, etc)?
I don’t think it’s really necessary to make the distinction to lower costs. If a process creates waste (what you would call environment-driven costs) then that waste has to be disposed off and that causes costs also. Either can be made more efficient.
The simple cost of the energy needed to run a machine for production should always have been captured and controlled (eg electricity cost), so that was not a problem. What environmental ABC would look at are environmental costs which get ‘lost’, for example in overheads.
I think the great thing about ABC is that it finds cost drivers and then allows those to be attacked to achieve greater efficiency.
Hi sir can explain to me the meaning of joint environmental cost centre below? Does environmental related costs mean specific overhead?
ABC applied to environmental costs distinguishes between environment-related costs and environment-driven costs. The former are attributed to joint environmental cost centres, for example incinerators or sewage plants. The latter are hidden in the general overheads and do not relate directly to a joint environmental cost centre, e.g. increased depreciation or higher cost of staff.
Environment-related are costs caused by you dealing with environmental matters, such as waste disposal. These costs can be accumulated for a cost centre, such as an incineration plant, then charged to the products on the basis of use.
Environment-driven are costs caused by events in the environment, such as higher electricity costs. In general these will be simply be added to overheads and not be apportioned to separate cost centres and then traced to products, but ABC suggests that they could be, and should be.
I do think the ACCA article should have explained this better.
Just to confirm, does this mean for eg like the govt wanted to reduce electricity/water consumption so they increase charge on these, and the increased costs of electricity and water are environmental-driven cost?
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