Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
System values and costs
For the purposes of assigning the system values and costs, material movements have to be
treated as cost drivers. “System” costs by definition are those costs that are incurred in the
course of in-house handling of the material flows (e.g., personnel costs, depreciation). System
costs are incurred by the company in efforts to ensure that material movements can be made
in the desired form. System costs allocated to material flows are defined as “system values”.
Whether these flows are raw materials, intermediate or semi-finished goods, or material
losses, each in-house material flow can be seen as a cost carrier for allocating system costs
systematically according to cause. Under this heading come all costs which are incurred
inside the company for the purposes of maintaining and supporting material throughput, e.g.,
personnel costs or depreciation.
System costs are allocated to the outgoing product flows (e.g., from the “production” cost
centre) and then passed on as system values to the subsequent flows and inventories.
Delivery or disposal costs
For those flows leaving the company specific delivery or disposal costs must also be
allocated. Such outgoing delivery and final disposal costs include payments to external third
parties; thus these are by definition not part of system costs. Delivery and disposal costs
include all costs incurred in ensuring that material leaves the company, i.e., not only transport
costs for products but, in particular, the external costs for disposing of waste and the fees for
wastewater and effluent control.
The result of flow cost accounting is end-to-end transparency showing quantities, values
and costs of material flows, separated into the three categories “material”, “system” and
“delivery and disposal”. One decisive point in flow cost accounting is that the above-mentioned
three categories of values and costs are separately recorded and managed end-to-end both
for the material flows and for the material inventories. Practical experience shows that this can
bring about fundamental changes in a company’s way of seeing things, of making decisions
and of acting, whereas in traditional cost accounting, after the first processing stage when the
intermediate product is calculated, material costs and system costs are already mixed
together. It thus very soon becomes impossible to list costs and values separately according to
the three categories either for material movements or for inventories.
6.4.3. The Method – an overview
Flow cost accounting is a far-reaching computerized accounting approach which is made up of
numerous individual steps and which has to deal with massive amounts of data. Flow cost
accounting can therefore only be performed with the appropriate computer support. 14
Experience shows that a company’s existing database, material management system and
production planning and control system will usually contain the majority of the data needed.
14 See also Krcmar et al. (2000) and Dold and Enzler (1999).
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