Faraday Chemical produces two chemical products: an herbicide and an insecticide. The controller and environmental manager have identified the following environmental activities and costs associated with the two products:
| |
Herbicide |
Insecticide |
|
Pounds produced
|
12,000,000
|
30,000,000
|
| Packaging materials (pounds) |
3,600,000 |
1,800,000 |
|
Energy usage (kilowatt hours)
|
1,200,000
|
600,000
|
|
Toxin releases (pounds into air)
|
3,000,000
|
600,000
|
|
Pollution control (machine hours)
|
480,000
|
120,000
|
|
Costs of activities:
|
|
|
|
Using packaging materials
|
$5,400,000
|
|
|
Using energy
|
1,440,000
|
|
|
Releasing toxins (fines)
|
720,000
|
|
|
Operating pollution control equipment
|
1,680,000
|
|
Required
1. Calculate the environmental cost per pound for each product. Which of the two 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 $3,240,000 per year. How would assignment of these costs change the unit cost? Should they be assigned?