enviornmental costing

8/7/2019 Enviornmental Costing

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Environmental Costing:

Essential Part of Life CycleCosting

By-

Lakshit Gupta

Roll No-83

Sec-C


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The theory and practice of environmental management accounting have

emerged in recent decades as a response to the growth of environmental

problems.

EMA can be defined as the identification, collection, estimation, analysis,internal reporting, and use of materials and information relating to energy flow

and environmental and other costs for both conventional and environmental

decision-making within an organization.

It is now a widely used tool in balancing the interaction between the economic,

social and technological factors in the development process to achieve the

conditions for sustainable environment.

The rapid growth in the number of companies that are awarded ISO 14001certificates has enhanced the development of EMA all over the world.

Many governments are involved in promoting EMA. In China, the government

and companies are doing their best to keep pace with the global trend of

environmental protection

The following are the advantages of environmental accounting ----

1.Decision Making: Environmental cost information can illuminate issues such as

y determining the level of value added,y use of risk-based versus necessity acquisitions,y capital budgeting including lower Hurdle Rates for environmental projects,y product costing


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2.Baseline Cost Information: By developing baseline environmental cost

information, managers can

y improve resource allocation decisions,y Improve cost controly support lobbying effortsy Compare baseline costs to current costs which may help in

cost reduction

y Identify opportunities, estimate future project costs may serve as abasis for budgeting.

3. Management Incentives: environmental cost information might be useful forimproving the management performance evaluation process by incorporating

environmental costs into financial performance measures.

These costs could also be used for public relations purposes, by providing

evidence of the efforts made by the company in environmental stewardship.

.

Problems In Environmental Costing

The main problems of Environmental management accounting relate to

y the specification of environmental accounting informationy The allocation of environmental costs.y Legislation issues.y Lack of environmental accounting standards.

A supportive corporate culture forms the foundation for developing a successful

environmental cost accounting system.

These days many companies have started doing environmental costing.


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One such example of such a company is International Refineries, a U.S based

company dealing in petrochemicals.

International Refineries is addressing environmental cost accounting by

y Identifying environmental costs through a coding system .This system willbe useful in allocating environmental costs to the products and processes

that cause them, and isolating nonstandard cost performance where it

occurs.

y They are approaching environmental costs by Retrofitting to their existingaccounting systems.

y International Refineries generate environmental cost data as part of theGeneral Ledger systems

y The company focuses on expense elements and is consistent with theirprimary use of the system as an aid to capital budgeting for environmental

projects.


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enviornmental costing

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