Environmental Management Accounting Procedures and Principles

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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). -84-
Environmental Management Accounting Procedures and Principles The extra effort and expense involved in implementing flow cost accounting is thus not so much the continuing acquisition of additional data but rather the system’s one-time installation. The data flow and the sequence of flow cost accounting run from the stipulation of the necessary database by way of the accounting elements through to the various results and report form. In the opposite direction, in response to specific demands concerning the results and report forms, adaptations regarding the accounting elements or even the database may be required. results and report forms flow model flow cost flow cost with data matrix report accounting elements material flow accounting system cost accounting information base material flow model database (e.g. SAP R/3 ) Figure SEQARABISCH38. The components of flow cost accounting Source: IMU Augsburg. The information base needed for flow cost accounting comprises the material flow model and the defined database. The material flow model maps the structure of the material flow system. The database contains the data needed to quantify the material flow model. The database refers both to material flows and inventories and also includes other relevant system data. It is used as a basis for calculating the quantities, values, and costs allocated to the material flow model. The accounting elements can initially be divided into material flow accounting and system cost accounting. -85-
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