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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 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?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 14, Problem 41P
Textbook Problem
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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

Required:

  1. 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. 2. Assuming ecoefficiency, what relationship over time would you expect to observe between the environmental benefits category and the environmental costs category?

1.

To determine

Classify each item as prevention, detection, internal failure, or external failure; first classify items of benefits category and then the costs category.

Explanation of Solution

Environmental costs: Environmental costs are incurred due to poor environmental quality that may or may not exist.

Environmental costs are related with the “creation, detection, remediation, and prevention” of environmental degradation.

Classification of environmental costs:

  • “Environmental prevention costs: These costs are incurred for preventing the degradation of the environment”.
  • “Environmental detection costs: These costs are incurred to ascertain whether the firm is conforming to environmental standards”.
  • “Environmental internal failure costs: These costs are incurred to avoid discharge of contaminants to the environment after they are produced”.
  • “Environment external failure costs: These costs are incurred after contaminants are discharged to the environment”.

“Classify each item as prevention, detection, internal failure, or external failure; first classify items of benefits category and then the costs category”.

Environmental benefitsClassification
Ozone depletionExternal failure
Hazardous waste disposalExternal failure
Hazardous waste materialInternal failure
Nonhazardous waste disposalExternal failure

2.

To determine

Explain about the relationship expected between the environmental benefits category and the environmental costs category.

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Chapter 14 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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