Download Environmental Cost Accounting

Environmental Cost Accounting
requirements and solutions for
Romanian enterprises
Ec. Ionut Bandrabur
26, Ecaterina Teodoroiu Street
Panciu, Vrancea, 625401, Romania
Phone: +40741623593
E-mail: [email protected]
May 2006
Objectives on ECA
For implementing eco-efficiency concept
in Romanian manufacturing business area
it is necessary to reduce before to
recycle:
 reduction of operational costs
 reduction of energy and water consumption
 reduction of emissions, harmful substances and waste
May 2006
Some definitions



Sustainable development means:
Other form of production (with a
environmental effects);
Other uses of raw materials and energy.
view
of
 In the spirit of Eco-efficiency, top priority is to
realize the product or to provide the service while
reducing energy and materials needs.
 Environmental Cost Accounting – identification,
appropriation and aplication of environmental costs.
May 2006
Organisation benefits




Identification
of
where
materials and energy costs
are greatest;
Better informed decisions
about
how
non-product
outputs minimisation will
save
your
organisation
money;
Identification of potential
productivity gains;
Demonstrating to investors,
financial
institutions,
customers, employees and
the community that your
organisation is committed
to forward planning and
environmental
responsability
May 2006
Steps toward ECA



State of the Art concerning Romanian
situation
Flow cost accounting in:
physical units
–
Material flow
accounting

monetary units – Process costing
system and Activity-based Costing
May 2006
Cost concepts for Production







Direct materials
Direct labour
Prime cost= cost of direct
materials + cost of direct labour
Conversion cost= cost of direct
labour + factory overhead
Factory overhead
Direct costs: all costs that can
be directly related to a product
Indirect costs: costs offered for
a host of different products and
services it is very hard to
allocate these costs over the
different products and services
May 2006
Flow cost accounting – what
and how?
Flow-Cost Accounting is a material and
energy flow-oriented cost accounting
approach.

The implementation of FCA is
comprised of following steps:
1) Creation a Flow Model;
2) Collection of Material and Cost Data;
3) Allocation of Costs.

May 2006
Flow model



Material value and
costs;
System value and
costs;
Delivery and
disposal value and
costs.
May 2006
Collection of Material and Cost
Data




Production order;
Input material;
Product material;
Product area
machine.
May 2006
Allocation of costs
Allocate shared costs
using
selected
methods:


Process
costing
system;
Activity-Based
Costing (ABC).
May 2006
Process costing system

Process costing system



Provides unit cost information
Supplies cost data to support management
decisions
Furnishes ending values for inventory
accounts



Materials Inventory
Work in Process Inventory
Finished Goods Inventory
May 2006
Activity-Based Costing (ABC)
and Multiple Overhead Rates


ABC is a method of assigning overhead based on a
number of different allocation bases (rather than just
one). ABC groups overhead costs into Cost Pools.
Model Elements





Resources
Activities
Cost Objects
Resource Drivers
Activity Drivers
May 2006
Why ABC/ECA


Conventional systems are not complete
 Do not show the consequences of resource
management decisions
 Do not show the cost of doing business how we do
business
 Provide few insights about how to improve, or may
even encourage actions that damage
competitiveness
Do not provide leaders/managers with the
information they need to efficiently run their
organization.
May 2006
ABC basics - example
Resources Drivers
Activities
Drivers
SCHEDULING
PERSONNEL
40 hours
100 Hours
€1 per Hour
€40 / 40 Lots
=
€1 per Lot
Products
A
Lots = 35
Setups = 20
SETUP
60 hours
B
€60 / 30 setups
=
€2 per Setup
Lots = 5
Setups = 10
Personnel Exp.
€100
€35
€40
€75
Lots Scheduled - 40
Setups Performed - 30
May 2006
€5
€20
€25