Question

"A regime of perfectly specified property rights will ensure that 'full-cost accounting' will take place. Indeed, failure to incorporate 'full-cost accounting' in economic decision-making to can be traced to improperly specified property right." G. Weeks, 2002. Assess, within the context of an essay discussing the meaning and significance of "full-cost accounting" to the achievement of efficiency and the challenges presented by the concept of "full-cost accounting" in relation to economic decisions having environmental impacts

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Answer 1

Full cost accounting is a concept in which we try to look behind the direct cost involved in completion of projects.

Since every project undertaken takes some resources from society and thus has an impact on the society as a large and such impacts are called externalities which can be positive or negative. Fir instance an externality may create job opportunities for the people and other externality may have adverse impact on atmosphere or environment like high emission of green house gases.

Thus by doing full cost accounting we try to consider each and every day for involved and try to look beyond the direct cost associated with the project. It is a very significant concepts as :-

1 . It creates a socially responsible and educated society where people respect and care for each other.

2. It creates awareness among business and people.

3. It develops best practices to implement business policies without adversely impacting the environment.

However there are various challenges presented by full cost accounting which are :

1. Lack of availability of data = since these practices are at their initial level only currently so there may be lack of data resulting in misleading decision.

2 . Lack of interest by management = management sometimes do not see the direct benefit associated with it and may try to avoid it.

3. Cost involved = There is a lot of cost involved in their system from collecting data to trained staff and other infrastructure related cost, thus cost involved is higher and direct benefit can not be seen immediately which creates a negative view about it.

4 . Difficulties for small business = Given the amount of investment involved in running such a system it may not be possible for small business to operate such a a system for a long while.