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Q) In environmental costing, the future cost of cleaning up operations for a product or activity
may be classified as which of the following?
a) Carbon footprint
b) Contingent cost
c) Hidden cost
d) Relationship cost.The Correct Answer as per kit is Option B (i.e. Contingent Cost”.
Sir i was going through one of the document of US Environmental Protection Agency titled “An Introduction to Environmental Accounting as a Business Management Tool”.
In which they have explained the 4 different types of Environmental Cost.
The Potentially Hidden Environmental Cost was explained by further dividing it into 3 parts.
a) Upfront Environmental Cost
b) Voluntary Environmental Cost
c) Back-end Environmental Cost.Back- end Environmental Cost was explained as.
Environmental costs of current operations that are prospective, meaning they will occur at more or less well defined points in the future.Examples include the future cost of
decommissioning a laboratory that uses licensed nuclear material, closing a landfill cell, replacing a storage tank used to
hold petroleum or hazardous substances.While Contingent Cost was explained as Costs that may or may not be incurred at some point in the future.
Examples include the
Costs of remedying and compensating for future accidental releases of
contaminants into the environment (e.g., oil spills), fines and penalties for
future regulatory infractions, and future costs due to intentional releases.So based upon the above analysis shouldn’t the answer be a Back-end Hidden Cost?
As it is a cost to be incurred in future related to a current product or activity?No. There is a difference between the two sets of examples you quote. Decommissioning a laboratory or replacing a storage tank are different from the costs of dealing with pollution. The wording of the question could perhaps be a little better, but ‘cleaning up’ operations is meant to refer to cleaning up possible pollution etc. as opposed to the cost of closing down the operation.
A better article to read is the technical article written by the examining team on the ACCA website. https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/Env-MA.html
Thankyou Sir.
Before going through the above mentioned document, i read ACCA’s technical article but things were not in much details.
Sir there is another question related to EMA, i wanted to ask.
A manufacturer includes environmental costs in product costs. Total
environmental costs for the previous period were as follows:1) Staff training on environmental awareness $ 50,000
2) Supplier compliance monitoring $15,000
3) Waste disposal costs $ 85,000
4) Site feasibility studies $ 10,000
5) Site clean-up costs $ 40,000
6) Off-set costs $ 5,000
7) Protective equipment costs $ 4,000
8) Certification costs $ 1,000
9) External failure costs $ 8,000What is the total of these costs that will be classified as
environmental prevention costs?The correct answer is. $ 64000
1) Staff training on environmental awareness $ 50,000
2) Site feasibility studies $ 10,000
3) Protective equipment costs $ 4,000.Sir,
I wanted to know in the above Environmental Related cost.1) Why are we considering Site Feasibility study as a Environmental Prevention Cost? Being more Precise how Site Feasibility Study helps in preventing production of waste ?
2) Why Certification Cost has not been considered as Prevention Cost.
As per Kaplan Study Text “obtaining certification relating to meeting the requirements of national and international standards” is a Prevention Cost.
And as per Example based on Hansen and Mowen (2009)
“Obtaining ISO 14001 certificate” is a Prevention Cost.I cannot comment on what is written in the Kaplan Text.
I would regard obtaining a certificate as being a prevention cost, and I would not regard a site feasibility study as being a prevention cost. I do not know why Kaplan has done differently.
(I would not be over worried about this – anything on environmental costs in the exam is only ever likely to be in Section A of the exam and there are never likely to be many marks on it.)
Thankyou for your help Sir ??.
A lot of other tutors in their video on YouTube have commented that
“Site Feasibility Study, helps in assessing all possible Environmental Risk and impact of organisation’s operation on environment.
Therefore helping organisation to develop measures to prevent production of waste or any other sort of pollution.
Thus its a Prevention Cost “
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