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cost ch 16 - 165 1 Hender Chemicals Environmental Cost...

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16–5 1. Hender Chemicals Environmental Cost Report For the Year Ended December 31, 2007 Environmental Costs Percentage * Prevention costs: Evaluating suppliers ......................... $ 120,000 Recycling products ........................... 75,000 $ 195,0000.33% Detection costs: Inspecting products/processes ............ $ 600,000 Developing perf. measures ................. 60,000 660,000 1.10 Internal failure costs: Treating toxic waste ......................... $ 4,800,000 Operating equipment .......................... 840,000 Licensing facilities ........................... 360,000 6,000,00010.00 External failure costs: Settling claims ......................... $ 1,200,000 Cleanup of soil ........................... 1,800,000 3,000,000 5.00 Totals $ ......... 9,855,000 16.43 % *Of operating costs: $60,000,000. 2. Relative Distribution: Environmental Costs Prevention 2% Internal Failure 61% Detection 7% External Failure 30% This distribution reveals that the company is paying little attention to preventing and detecting environmental costs. To improve environmental performance, much more needs to be invested in the prevention and detection categories.
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16–6 1. Both items should be added to the external failure costs category in the report. The first item would add $525,000 and is a private cost. The second adds $1,200,000 and is a societal cost. Under a full costing regime, the $1,200,000 should also be included in the report. Often, however, only private costs will be included. 2. Hender caused the opportunity cost, and many would argue that it should be disclosed. Whether it will voluntarily disclose this cost is questionable. Management would likely feel that such disclosure would draw unfavorable attention to the company and damage its image. Perhaps if the disclosure is coupled with an announcement of the cleanup of the river and lake, then it could be turned to the advantage of the company: “We are undertaking a cleanup, and one of the major benefits to the community is the restoration of the fishing and recreational opportunities worth $1,200,000 to the community.” 16–7 1. Activity rates: Packaging rate: $3,375,000/3,375,000 = $1.00 per pound Energy rate: $900,000/1,125,000 = $0.80 per kilowatt-hour Toxin release rate: $450,000/2,250,000 = $0.20 per pound Pollution control rate: $1,050,000/375,000 = $2.80 per machine hour Unit cost: Org AB Org XY
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