Assigning Environmental Costs; Life-Cycle Cost Assessment; Environmental Cost Control
Pierce Enterprises produces two types of fertilizers: Quikrichen and Longrichen. Pierce recently has received significant criticism from environmental groups, local residents, and the federal government concerning its environmental per- formance. Henry Hyde, president of Pierce, wants to know how the company's environmental activities affect the cost of each product. He believes that the main source of the environmental problems lies with Quikrichen but would like some evidence to support (or refute) this belief. The controller has assem- bled the following data to help answer this question:
| |
Quikrichen
|
Longrichen
|
|
Pounds of fertilizer produced
|
1,000,000
|
2,000,000
|
|
Engineering hours (process design)
|
1,500
|
4,500
|
|
Pounds of solid residues treated
|
30,000
|
10,000
|
|
Inspection hours (environmental)
|
10,000
|
5,000
|
|
Cleanup hours (local lake)
|
8,000
|
2,000
|
|
Additionally, the following environmental activity costs were reported:
|
|
Designing process
|
$150,000
|
|
|
Treating residues
|
600,000
|
|
|
Inspecting process
|
120,000
|
|
|
Cleaning up lake
|
200,000
|
|
Required
1. Calculate the environmental cost per pound of fertilizer for each product.
2. Based on the calculations in Requirement 1, which product appears to be the most environmentally harmful?
3. Would life-cycle cost assessment provide stronger evidence for the environmental suitability of each product? Explain.
4. Explain how a strategic-based responsibility accounting system can be used to help improve Pierce's performance.