Download - 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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