Question

Melbourne Industrial Ltd (MIL) produces two types of gadgets: Celerium and Millerium. MIL recently received significant criticism from environmental groups, local residents, and the federal government concerning its environmental performance. Gett W. Orried, president of MIL, wants to know how the company's environmental activities affect the cost of each product. Gett believes that the main source of the environmental problems lies with Celeriun, but would like some evidence to support or refute her belief. The controller has assembled the following data to help determine this:

	Celerium	Millerium
Number of units produced	500,000	1,000,000
Engineering hours (process design)	750	2,500
Kilograms of solid residues treated	15,000	5,000
Inspection hours (environmental)	6,000	3,000
Cleanup hours (local lake)	4,000	1,000
Additionally, the following environmental activity costs were reported:
Designing process		$ 81,250
Treating residues		300,000
Inspecting processes		72,000
Cleaning up lake		100,000

Gett W. Orried has also decided on the following strategy to improve MIL’s environmental performance:

- Hire an environmental engineer to provide the capabilities needed to improve the environmental performance.   This engineer would be responsible to redesign and improve the production processes with the objective of reducing the solid residues. Gett expects this action to reduce the treating residues costs.

- All employees would be sent to several training seminars to learn about environmental management. These employees would then be empowered to make improvements in MIL’s environmental performance.

- Once the processes were redesigned, the company would participate in a third-party environmental certification program so that customers would be assured that the environmental improvements were valid.

Required:

1)Calculate the environmental cost per unit for each product.

2)Based on the calculations in requirement a, 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 Prose's performance.

5)Illustrate Gett’s environmental improvement strategy by using a Balanced Scorecard flow diagram by adding the environmental perspective to the four perspectives in Balanced Scorecard. (Hint: Add the environmental perspective in between the customer and processes perspective). (8 + 1 + 3 + 4 + 9 = 25 marks)  

Answer 1

Answer-2

• As per the answer given in (1), Celerium is appears to be the most environmentally harmful product as it is incurring more Environmental cost as compared to Millerium.

Answer-3

• Yes, life-cycle cost assessment provide stronger evidence for the environmental suitability of each product.
  • Life-cycle cost assessment is a methodology for assessing environmental impacts associated with all the stages of the life-cycle of a commercial product, process, or service.
  • Life-cycle cost assessment identifies the various eco-costs concerned with every life cycle stage of the product.
  • Life-cycle cost assessment provide relationship between total cost and environment cost of each product.
  • It assist to improve or change design and process for manufacturing of product.

Answer -4

• A strategic-based responsibility accounting system converts an organization`s mission and startegy into operational objectives and measures.
• It provides Financial measures which defines responsibility related to customer and measure performance related to customer.
• It defines responsibility and performance through Process measure.
• It defines responsibility and performance through Communicate Strategy measure.
• It provides performance measure through Promotions and Gain Sharing .
• All above, will help to improve performance.

Answer -5

• Gett`s Environmental Improvement Strategy as follows,
  • Hire an Environmental to improve and redesign production process to reduce solid residues.
  • All employees will be sent to several training seminars to learn about environmental management.
  • Gett will also participate third-party environmental certification program.
•