Cost Systems

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Costing Systems Costing systems are part of the overall accounting system used by companies to measure sustainability performance and identify and account for expenditures accurately (Tatum, 2011). Three cost methods used as part of the decision-making process are Activity-based costing (ABC), Life-cycle costing (LCC), and Full cost accounting (FCA). The benefits and limitations of each in relation to sustainability efforts are examined.
Comparison Traditional cost accounting methods were based on labor intensive industries consisting of no automation and minor product specialization or diversification (Emblemsvag, 2010). Cost was driven by product development and services (Epstein, 2008). However, activity-based
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Thus, while ABC focuses on cause and effect related to activities, LCC measures present and future costs of a business activity, product, or service (Dorf & Kusiak, 1994). Full Cost Accounting (FCA) is the third account system. FCA determines the price of products and services by assessing their true cost including social and environmental costs (Conway-Schempf, 2011). FCA incorporates the bottom line costs of a company’s activities with the impact of these activities on the full social costs to society (Conway-Schempf, 2011). For example, societal costs from business activities include external costs such as health issues from car emissions. Inasmuch as many externalities are intangibles such as preserving ecosystems, factoring them into a company’s cost structure is problematic. However, according to Conway-Schempf (2011), “recognizing these externalities makes long-term sense for corporations and governments - today’s external costs become tomorrow’s internal costs as a result of regulation and legislation” (p. 19). Thus, FSA allows companies to place a dollar value on costs connected with present and future environmental changes (IISD, 2011). Consequently, FSA relates LCC’s financial impact of the stages of a product, service, or activity by accounting for the full societal

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