Question

Question)

28 September 2007

Yesterday at Broadmeadows Magistrates’ Court a steel processing company pleaded guilty to causing an environmental hazard following an incident where chromic acid spilled into a stormwater drain in 2005. The Broadmeadows Magistrates’ Court heard approximately 3,000 litres of acid spilled from Onesteel’s plant at Cliffords Road in Somerton between 29 October and 1 November in 2005. OneSteel voluntarily shut down its plant to clean up the acid spillage before resuming operations a week later.

The Court heard the discharge resulted from an overflow of acid from the purification cell system at the site, when the power and air supply was turned off for a long weekend. Chromic acid is used to plate steel. Magistrate Spillane found the company guilty, and without conviction ordered it pay $75,000 to Merri Creek Management Committee Inc.

EPA West Metropolitan Region Manager Scott Maloney said the potential impact of the acid could have harmed aquatic life in local waterways. “The community expects businesses to protect our local waterways as an essential part of their operations,” Mr Maloney said. “The acid spilled into a stormwater drain which then contaminated a Melbourne Water retarding basin.”

“Onesteel has since improved their practices and modified equipment to prevent a recurrence of this incident,” Mr Maloney said. Onesteel was ordered by the Court to publicise the court findings and penalty to its shareholders and the wider community. Magistrate Spillane also ordered Onesteel to pay EPA legal costs in the amount of $10,000.

Based on the article above, describe what sorts of costs could be categorised as the costs of:

• prevention
• internal failure

For each category, identify at least two types of costs that could potentially apply in the situation of OneSteel, and explain why the cost should be categorised in that particular category. Provide your answer in the following manner in the answer box below:

Prevention cost 1:

Reason:

Prevention cost 2:

Reason:

Internal Failure cost 1:

Reason:

Internal Failure cost 2:

Reason:

Answer 1

Answer:-

Prevention cost 1: shut down cost- OneSteel voluntarily shut down its plant to clean up the acid spillage before resuming operations a week later after the incident.

Reason: Here, shut down cost is treated as prevention cost as the company voluntarily shut down its operations to clean up the acid spillage that was caused due to the internal failure of the company. the company voluntarily shut down its operations and cleaned up to prevent futher internal failures or incidents from occuring.

Prevention cost 2: Onesteel has improved their practices and modified equipment to prevent a recurrence of this incident.

Reason: Onesteel has since improved their practices and modified equipment to prevent a recurrence of this incident. here, cost of improving practices and modifying equipment is treated as a prevention cost as these costs are incured to prevent the recurrence of this incident.

Internal Failure cost 1: Magistrate Spillane ordered company to pay $75,000 to Merri Creek Management Committee Inc.

Reason: Magistrate Spillane found the company guilty as the Court heard the discharge of chromic acid resulted from an overflow of acid from the purification cell system at the site, when the power and air supply was turned off for a long weekend. so, this cost is treated as an internal failure cost.

Internal Failure cost 2: Magistrate Spillane ordered Onesteel to pay EPA legal costs in the amount of $10,000.

Reason: Magistrate Spillane ordered Onesteel to pay EPA legal costs in the amount of $10,000 as Onesteel company caused an environmental hazard when chromic acid spilled into a stormwater drain in 2005. the potential impact of the acid could have harmed aquatic life in local waterways. The acid spilled into a stormwater drain which then contaminated a Melbourne Water retarding basin. the discharge of chromic acid resulted from an overflow of acid from the purification cell system at the site, when the power and air supply was turned off for a long weekend. This incident happened due to the internal control failure of the company and is treated as an internal failure cost.