Question

1. Environmental Cost Report

   Verde Company reported operating costs of $32,000,000 as of December 31, 20x5, with the following environmental costs:

   Testing for contamination	$ 480,000
   Inspecting products	544,000
   Treating toxic waste	992,000
   Obtaining ISO 14001 certification	480,000
   Designing processes	416,000
   Cleaning up oil spills	2,016,000
   Maintaining pollution equipment	864,000
   Cleaning up contaminated soil	3,872,000

   Required:

   1. Prepare an environmental cost report, classifying costs by quality category and expressing each as a percentage of total operating costs. Round percentages to two decimal places, if rounding is required. For example, 5.79% would be entered as "5.79".

   Verde Company
   Environmental Cost Report
   For the Year Ended December 31, 20x5
   	Environmental Cost	Total Environmental Cost	Percentage of Operating Costs
   Prevention costs:
   	$
   		$	%
   Detection costs:
   	$
   			%
   Internal failure costs:
   	$
   			%
   External failure costs:
   	$
   			%
   Total quality costs		$	%

   2. What if Verde deliberately did not include the cost of damaging the ecosystem because of solid waste disposal in its environmental cost report? What is the most likely reason?

Answer 1

1.

	Environmental cost	Total Environment cost	% of operating cost
Prevention cost	Testing for contamination $480000
	Designing process $416000
	Maintaining pollution equipment $864000
Total		1760000	18.21%
Detection cost	Inspecting products $544000
	ISO 14001 certification $480000
Total		1024000	10.60%
External failure	cleaning up oil spils $2016000
	Cleaning of contaminated soil $3872000
Total		5888000	60.93%
Internal failure	Treating toxic waste $992000	$992000	10.36%
Total operation cost		9664000	100%

2. Reason for not including cost of damaging the eco system

Environmental cost report prepared to measuring environmental performance. Cost of damaging the ecosystem is the cost of damages to environment. Reason for not including Cost of damaging eco systems to cost report is , that the report should show good environmental performance of the company. People's are more becoming environmentally aware , if company damaging the environment then it is adversely affect from the investor's, customers point of view and also government place restrictions , so the company's operations are restricted.