Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
Cost attribution is done in two steps, first from joint (environmental) cost centres like waste
management and emission treatment, to the responsible cost centres in the production
process and secondly from the production cost centres to the respective cost carriers/objects
(product A and B).
A simple example in figures 27 and 28 shows how overhead cost-attribution can significantly
change the production costs of products.
Awareness should be paid to the fact, that changed allocation rules may lead to a
redistribution of power in a company. Production lines and products which used to be
profitable may suddenly have a bad performance, so the responsible line managers will tend
to refuse the change, especially if the do not have the means to improve their situation.
Whenever possible, costs should be allocated to the respective cost centres and cost
carriers/objects (products). Many terms are used to describe the methodologies for that
purpose, such as “activity based costing”, “full cost accounting”, “process costing”, “material
flow costing”.
Materials by
recipe/formula and stock
issuing
Working hours by time
records
Product A
Product B
Example
Overhead Product A Product B
Direct costs Direct costs 70 70
Direct costs Direct costs 30 30
Distribution by %
Overhead
product turnover
Depreciation 50
Rent 10
Energy 5
Communication 10
Administration 25
Top management’s
salary
10
Waste & emission
treatment
10
Total overhead 120 60 60
Total product costs 160 160
Figure 28.
Environmental costs hidden in overhead accounts
Product A Product B Example
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