There are various environmental costs categorized into different categories. Any cost that directly affects the environment and is incurred to protect the environment is the environmental cost. For example, costs that have environmental relevance, environment protection cost, costs associated with the clean and clear disposal of contaminated goods and wastage, the cost associated with protecting the environment, etcetera. Environmental cost definition differs from organization to organization. Although they mean the same, the angle of viewing them is different. It is very important to identify the cost. Everything about the cost of the environment is found in accounts, costs of materials, cost of waste disposal. Usually, environmental costs are hidden costs that make them difficult to identify, and equally difficult is to allocate them to the processes on which they are incurred. It is very important for an organization to dispose off its contaminated goods and wastage without affecting the environment. Doing so, requires money, which makes up the amount of environmental costs. Knowing, identifying, and allocating costs is very important for a business as it helps to make decisions. For example, a business must know the environmental costs associated with producing an item and allocate cost wisely to the product; the government also keeps a check on such activities.
As the environmental costs are hidden costs, and it is difficult to identify them. Usually, the environmental cost is mentioned in the books of accounts and ledger, but a person needs to identify them, which is a complex task and requires great knowledge about the environmental costs. For example, the cost of raw material impacts the environment because, due to material, wastage will get produced in the course of manufacturing the goods, and wastage needs proper disposal so as not to affect the environment that will cost money to the organization adding up to the environmental costs. Identifying environmental costs is a time-consuming and complex process in a large organization and thus, it is difficult to allocate them. When left unidentified, it is impossible to cut the environmental cost, which eventually creates a burden on an organization.
Administering Environmental Costs
Environmental costs can only be administered when they are successfully identified and allocated to the process and product. There are numerous environmental costs associated with the business, and they differ from organization to organization. Some of the environmental costs are :
Contaminations and Wastage – Usually, wastage and contamination are associated with the raw materials. When raw materials are turned into finished goods, wastage and contamination occur, and management needs to control them. For example, a company needs to pay for disposing of wastage, landfill costs, and fines, etcetera. From here, costs can be identified by any means, for example, by comparing the bought raw material with the actual produce and the difference would be wastage, and from there, management can take corrective measures to mitigate the loss caused by the wastage of raw material.
Water Usage – Everyone needs water, and so do companies and manufacturers. Manufacturers pay for buying water in the form of water bills and also pay for disposing of contaminated or dirty water (it is illegal to drain water in a river or a lake). So an organization must identify this cost and take corrective measures so as to reduce the wastage of water and reduce its water bills.
Transportation – Transportation is needed in various aspects of the business, for example, for bringing in the raw material, for transporting the finished goods, etcetera. And due to this pollution affects the environment. So a business must find efficient ways to reduce pollution and must find fuel-efficient techniques for transportation.
Writing Books Of Accounts For Environmental Costs
Management accounting techniques that are approved by the UNDSD are:
Analysis of Inflow and Outflow
Flow Cost Accounting method
Cost based on activity method
Costing through Lifecycle
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