Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 14, Problem 18E
1.
To determine
Explain the reason for which the eco-efficiency is considered as better view than espoused by compliance management.
2.
To determine
Explain the meaning of properly designed regulation and identify the key assumptions that must hold for the guided eco efficiency view to be valid.
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The following items are listed in an environmental financial statement (issued as part of an environmental progress report):
Environmental benefits (savings, income, and cost avoidance):
Ozone-depleting substances cost reductions
Hazardous waste disposal cost reductions
Hazardous waste material cost reductions
Nonhazardous waste disposal cost reductions
Nonhazardous waste material cost reductions
Recycling income
Energy conservation cost savings
Packaging cost reductions
Environmental costs:
Corporate-level administrative costs
Auditor fees
Environmental engineering
Facility professionals and programs
Packaging professionals and programs for packaging reductions
Pollution controls: Operations and maintenance
Pollution controls: Depreciation
Attorney fees for cleanup claims, and notices of violations (NOVs)
Settlements of government claims
Waste disposal
Environmental taxes for packaging
Remediation/Cleanup: On-site
Remediation/Cleanup: Off-site
In the environmental benefits section…
The following items are listed in an environmental financial statement (issued as part of an environmental progress report):
Environmental benefits (savings, income, and cost avoidance):
Ozone-depleting substances cost reductions
Hazardous waste disposal cost reductions
Hazardous waste material cost reductions
Nonhazardous waste disposal cost reductions
Nonhazardous waste material cost reductions
Recycling income
Energy conservation cost savings
Packaging cost reductions
Environmental costs:
Corporate-level administrative costs
Auditor fees
Environmental engineering
Facility professionals and programs
Packaging professionals and programs for packaging reductions
Pollution controls: Operations and maintenance
Pollution controls: Depreciation
Attorney fees for cleanup claims, and notices of violations (NOVs)
Settlements of government claims
Waste disposal
Environmental taxes for packaging
Remediation/Cleanup: On-site
Remediation/Cleanup: Off-site
1. Classify each item in the…
Suppose that Adriana’s decision was prompted mostly by the desire to receivethe computer quickly. Informed that it was losing sales because of the longertime to produce and deliver its products, the management of the company producing Drantex decided to improve delivery performance by improving its internal processes. These improvements decreased the number of defective units andthe time required to produce its product. Consequently, delivery time and costsboth decreased, and the company was able to lower its prices on Drantex.Explain how these actions translate into strengthening the competitive positionof the Drantex PC relative to the Confiar PC. Also discuss the implications forthe management accounting information system.
Chapter 14 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 14 - What is the difference between quality of design...Ch. 14 - Why are quality costs the costs of doing things...Ch. 14 - Prob. 3DQCh. 14 - Describe the Taguchi quality loss function, and...Ch. 14 - Identify and discuss the four kinds of quality...Ch. 14 - Explain why external failure costs can be more...Ch. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Describe the three types of quality performance...Ch. 14 - Prob. 10DQ
Ch. 14 - If a firms annual sales are 200 million, what...Ch. 14 - Explain why it is important for a manager to...Ch. 14 - Prob. 13DQCh. 14 - Explain why the Accounting Department should be...Ch. 14 - Prob. 15DQCh. 14 - What is ecoefficiency?Ch. 14 - Prob. 17DQCh. 14 - Prob. 18DQCh. 14 - Prob. 19DQCh. 14 - What are the four categories of environmental...Ch. 14 - Prob. 21DQCh. 14 - What does full environmental costing mean? Full...Ch. 14 - What information is communicated by the unit...Ch. 14 - Evans Company had total sales of 3,000,000 for...Ch. 14 - Prob. 2CECh. 14 - Ross Company implemented a quality improvement...Ch. 14 - Nabors Company had actual quality costs for the...Ch. 14 - Verde Company reported operating costs of...Ch. 14 - Pinter Company had the following environmental...Ch. 14 - Rachel Boyce, president of a company that...Ch. 14 - Quality attributes such as performance and...Ch. 14 - Stahman, Inc., estimates its hidden external...Ch. 14 - Prob. 10ECh. 14 - Abernathy, Inc., produces two different generators...Ch. 14 - Kang Company reported sales of 3,240,000 in 20x5....Ch. 14 - Gagnon Company reported the following sales and...Ch. 14 - Muskogee Company had sales of 60,000,000 in 20x1....Ch. 14 - Javier Company has sales of 8 million and quality...Ch. 14 - In 20x4, Tru-Delite Frozen Desserts, Inc.,...Ch. 14 - Prob. 17ECh. 14 - Prob. 18ECh. 14 - Achieving sustainable development will likely...Ch. 14 - Classify the following environmental activities as...Ch. 14 - At the end of 20x5, Bing Pharmaceuticals began to...Ch. 14 - Prob. 22ECh. 14 - Coyle Pharmaceuticals produces two organic...Ch. 14 - Prob. 24ECh. 14 - Which of the following quality costs is an...Ch. 14 - Which of the following would be a hidden quality...Ch. 14 - Using the Taguchi quality loss function, an...Ch. 14 - Environmental costs are those costs incurred...Ch. 14 - Two products, Product A and Product B, are...Ch. 14 - Kathy Shorts, president of Oliver Company, was...Ch. 14 - Panguitch Company manufactures a component for...Ch. 14 - Gaston Company manufactures furniture. One of its...Ch. 14 - Classify the following quality costs as...Ch. 14 - Wayne Johnson, president of Banshee Company,...Ch. 14 - Recently, Ulrich Company received a report from an...Ch. 14 - In 20x5, Major Company initiated a full-scale,...Ch. 14 - Paper Products Division produces paper diapers,...Ch. 14 - In 2011, Milton Thayne, president of Carbondale...Ch. 14 - Iona Company, a large printing company, is in its...Ch. 14 - Prob. 40PCh. 14 - The following items are listed in an environmental...Ch. 14 - Refer to Problem 14.41. In the environmental...Ch. 14 - The following environmental cost reports for 20x3,...Ch. 14 - Refer to Problem 14.43. In 20x3, Jack Carter,...
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- Environmental costs are those costs incurred because poor environmental quality exists or may exist. As with quality costs, environmental costs can be placed into one of four categories. One of these categories is external failure costs. Which of the following describes one of the two external failure cost categories? a. Costs incurred to detect pollution caused by the firm b. Costs incurred to prevent pollution from contaminating the environment after pollution has been produced c. Pollution costs caused by the firm but paid for by society d. Costs incurred to prevent the production of pollutionarrow_forwardClassify the following environmental activities as prevention costs, detection costs, internal failure costs, or external failure costs. For external failure costs, classify the costs as societal or private. Also, label those activities that are compatible with sustainable development (SD). 1. A company takes actions to reduce the amount of material in its packages. 2. After the activated carbons useful life, a soft-drink producer returns this material used for purifying water for its beverages to the supplier. The supplier reactivates the carbon for a second use in nonfood applications. As a consequence, many tons of material are prevented from entering landfills. 3. An evaporator system is installed to treat wastewater and collect usable solids for other uses. 4. The inks used to print snack packages (for chips) contain heavy metals. 5. Processes are inspected to ensure compliance with environmental standards. 6. Delivery boxes are used five times and then recycled. This prevents 112 million pounds of cardboard from entering landfills and saves 2 million trees per year. 7. Scrubber equipment is installed to ensure that air emissions are less than the level permitted by law. 8. Local residents are incurring medical costs from illnesses caused by air pollution from automobile exhaust pollution. 9. As part of implementing an environmental perspective for the Balanced Scorecard, environmental performance measures are developed. 10. Because of liquid and solid residues being discharged into a local lake, the lake is no longer fit for swimming, fishing, and other recreational activities. 11. To reduce energy consumption, magnetic ballasts are replaced with electronic ballasts, and more efficient light bulbs and lighting sensors are installed. As a result, 2.3 million kilowatt-hours of electricity are saved per year. 12. Due to a legal settlement, a chemicals company must spend 20,000,000 to clean up contaminated soil. 13. A soft-drink company uses the following practice: In all bottling plants, packages damaged during filling are collected and recycled (glass, plastic, and aluminum). 14. Products are inspected to ensure that the gaseous emissions produced during operation follow legal and company guidelines. 15. Operating pollution control equipment incurs costs. 16. An internal audit is conducted to verify that environmental policies are being followed.arrow_forwardThe following items are listed in an environmental financial statement (issued as part of an environmental progress report): Environmental benefits (savings, income, and cost avoidance): Ozone-depleting substances cost reductions Hazardous waste disposal cost reductions Hazardous waste material cost reductions Nonhazardous waste disposal cost reductions Nonhazardous waste material cost reductions Recycling income Energy conservation cost savings Packaging cost reductions Environmental costs: Corporate-level administrative costs Auditor fees Environmental engineering Facility professionals and programs Packaging professionals and programs for packaging reductions Pollution controls: Operations and maintenance Pollution controls: Depreciation Attorney fees for cleanup claims, and notices of violations (NOVs) Settlements of government claims Waste disposal Environmental taxes for packaging Remediation/cleanup: On-site Remediation/cleanup: Off-site Required: 1. Classify each item in the statement as prevention, detection, internal failure, or external failure. In classifying the items listed in the environmental benefits category, first classify the underlying cost item (e.g., the cost of hazardous waste disposal). Next, think of how you would classify the cost of the activities that led to the cost reduction. That is, how would you classify the macro activity: reducing hazardous waste cost disposal? 2. Assuming ecoefficiency, what relationship over time would you expect to observe between the environmental benefits category and the environmental costs category?arrow_forward
- In 20X1, Don Blackburn, president of Price Electronics, received a report indicating that quality costs were 31% of sales. Faced with increasing pressures from imported goods. Don resolved to take measures to improve the overall quality of the companys products. After hiring a consultant in 20X1, the company began an aggressive program of total quality control. At the end of 20X5, Don requested an analysis of the progress the company had made in reducing and controlling quality costs. The accounting department assembled the following data: Required: 1. Compute the quality costs as a percentage of sales by category and in total for each year. 2. Prepare a multiple-year trend graph for quality costs, both by total costs and by category. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain. 3. Using the 20X1 quality cost relationships (assume all costs are variable), calculate the quality costs that would have prevailed in 20X4. By how much did profits increase in 20X4 because of the quality improvement program? Repeat for 20X5.arrow_forwardVerde Company reported operating costs of 50,000,000 as of December 31, 20x5, with the following environmental costs: Required: 1. Prepare an environmental cost report, classifying costs by quality category and expressing each as a percentage of total operating costs. What is the message of this report? 2. Prepare a pie chart that shows the relative distribution of environmental costs by category. What does this report tell you? 3. What if Verde deliberately did not include the cost of damaging the ecosystem because of solid waste disposal in its environmental cost report? Offer possible reasons for this decision. If consciously avoided, is this decision unethical?arrow_forwardMaxwell Company produces a variety of kitchen appliances, including cooking ranges and dishwashers. Over the past several years, competition has intensified. In order to maintainand perhaps increaseits market share, Maxwells management decided that the overall quality of its products had to be increased. Furthermore, costs needed to be reduced so that the selling prices of its products could be reduced. After some investigation, Maxwell concluded that many of its problems could be traced to the unreliability of the parts that were purchased from outside suppliers. Many of these components failed to work as intended, causing performance problems. Over the years, the company had increased its inspection activity of the final products. If a problem could be detected internally, then it was usually possible to rework the appliance so that the desired performance was achieved. Management also had increased its warranty coverage; warranty work had been increasing over the years. David Haight, president of Maxwell Company, called a meeting with his executive committee. Lee Linsenmeyer, chief engineer; Kit Applegate, controller; and Jeannie Mitchell, purchasing manager, were all in attendance. How to improve the companys competitive position was the meetings topic. The conversation of the meeting was recorded as seen on the following page: DAVID: We need to find a way to improve the quality of our products and at the same time reduce costs. Lee, you said that you have done some research in this area. Would you share your findings? LEE: As you know, a major source of our quality problems relates to the poor quality of the parts we acquire from the outside. We have a lot of different parts, and this adds to the complexity of the problem. What I thought would be helpful would be to redesign our products so that they can use as many interchangeable parts as possible. This will cut down the number of different parts, make it easier to inspect, and cheaper to repair when it comes to warranty work. My engineering staff has already come up with some new designs that will do this for us. JEANNIE: I like this idea. It will simplify the purchasing activity significantly. With fewer parts, I can envision some significant savings for my area. Lee has shown me the designs so I know exactly what parts would be needed. I also have a suggestion. We need to embark on a supplier evaluation program. We have too many suppliers. By reducing the number of different parts, we will need fewer suppliers. And we really dont need to use all the suppliers that produce the parts demanded by the new designs. We should pick suppliers that will work with us and provide the quality of parts that we need. I have done some preliminary research and have identified five suppliers that seem willing to work with us and assure us of the quality we need. Lee may need to send some of his engineers into their plants to make sure that they can do what they are claiming. DAVID: This sounds promising. Kit, can you look over the proposals and their estimates and give us some idea if this approach will save us any money? And if so, how much can we expect to save? KIT: Actually, I am ahead of the game here. Lee and Jeannie have both been in contact with me and have provided me with some estimates on how these actions would affect different activities. I have prepared a handout that includes an activity table revealing what I think are the key activities affected. I have also assembled some tentative information about activity costs. The table gives the current demand and the expected demand after the changes are implemented. With this information, we should be able to assess the expected cost savings. Additionally, the following activity cost data are provided: Purchasing parts: Variable activity cost: 30 per part number; 20 salaried clerks, each earning a 45,000 annual salary. Each clerk is capable of processing orders associated with 100 part numbers. Inspecting parts: Twenty-five inspectors, each earning a salary of 40,000 per year. Each inspector is capable of 2,000 hours of inspection. Reworking products: Variable activity cost: 25 per unit reworked (labor and parts). Warranty: Twenty repair agents, each paid a salary of 35,000 per year. Each repair agent is capable of repairing 500 units per year. Variable activity costs: 15 per product repaired. Required: 1. Compute the total savings possible as reflected by Kits handout. Assume that resource spending is reduced where possible. 2. Explain how redesign and supplier evaluation are linked to the savings computed in Requirement 1. Discuss the importance of recognizing and exploiting internal and external linkages. 3. Identify the organizational and operational activities involved in the strategy being considered by Maxwell Company. What is the relationship between organizational and operational activities?arrow_forward
- There are currently no formal mandatory environmental accounting standards firms must adhere to. Given the lack of regulation, should accountants even bother with preparing sustainability reports? Why or why not?arrow_forwardCoyle Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs associated with the two products: Required: 1. Calculate the environmental cost per pound for each product. Which of the two products appears to cause the most degradation to the environment? 2. In which environmental category would you classify excessive use of materials and energy? 3. Suppose that the toxin releases cause health problems for those who live near the chemical plant. The costs, due to missed work and medical treatments, are estimated at 2,025,000 per year. How would assignment of these costs change the unit cost? Should they be assigned?arrow_forwardRecently, Ulrich Company received a report from an external consulting group on its quality costs. The consultants reported that the companys quality costs total about 21 percent of its sales revenues. Somewhat shocked by the magnitude of the costs, Rob Rustin, president of Ulrich Company, decided to launch a major quality improvement program. For the coming year, management decided to reduce quality costs to 17 percent of sales revenues. Although the amount of reduction was ambitious, most company officials believed that the goal could be realized. To improve the monitoring of the quality improvement program, Rob directed Pamela Golding, the controller, to prepare monthly performance reports comparing budgeted and actual quality costs. Budgeted costs and sales for the first two months of the year are as follows: The following actual sales and actual quality costs were reported for January: Required: 1. Reorganize the monthly budgets so that quality costs are grouped in one of four categories: appraisal, prevention, internal failure, or external failure. (Essentially, prepare a budgeted cost of quality report.) Also, identify each cost as variable (V) or fixed (F). (Assume that no costs are mixed.) 2. Prepare a performance report for January that compares actual costs with budgeted costs. Comment on the companys progress in improving quality and reducing its quality costs.arrow_forward
- Kathy Shorts, president of Oliver Company, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely breaking even. Investigation revealed that poor quality was at the root of the problem. At the end of 20x5, Kathy decided to begin a quality improvement program. As a first step, she identified the following costs in the accounting records as quality related: Required: 1. Prepare a quality cost report by quality cost category. 2. Calculate the relative distribution percentages for each quality cost category. Comment on the distribution. 3. Using the Taguchi loss function, an average loss per unit is computed to be 15 per unit. What are the hidden costs of external failure? How does this affect the relative distribution? 4. Shortss quality manager decided not to bother with the hidden costs. What do you think was his reasoning? Any efforts to reduce measured external failure costs will also reduce the hidden costs. Do you agree or disagree? Explain.arrow_forwardIn 2011, Milton Thayne, president of Carbondale Electronics, received a report indicating that quality costs were 31 percent of sales. Faced with increasing pressures from imported goods, Milton resolved to take measures to improve the overall quality of the companys products. After hiring a consultant in 20x0, the company began an aggressive program of total quality control. At the end of 20x5, Milton requested an analysis of the progress the company had made in reducing and controlling quality costs. The Accounting Department assembled the following data: Required: 1. Compute the quality costs as a percentage of sales by category and in total for each year. 2. Prepare a multiple-year trend graph for quality costs, both by total costs and by category. Using the graph, assess the progress made in reducing and controlling quality costs. Does the graph provide evidence that quality has improved? Explain. 3. Using the 20x1 quality cost relationships (assume all costs are variable), calculate the quality costs that would have prevailed in 20x4. By how much did profits increase in 20x4 because of the quality improvement program? Repeat for 20x5.arrow_forwardBased on the 2015 survey, Amanda Westerly believed that Osborn had to improve product quality. In making her case to Osborn management, how might Westerly have estimated the opportunity cost of not implementing the quality-improvement program?arrow_forward
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