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ACCA Strategic Professional · Advanced Performance Management · Sustainability

Brindle Manufacturing uses Environmental Management Accounting (EMA). A plant manager proposes tracking only the purchase cost of materials, since that is what appears in the financial accounts as materials expense. The management accountant argues that EMA requires a wider approach. Which of the following best reflects the EMA approach to materials?

EMA uses techniques such as material flow cost accounting to trace total material inputs and outputs and to value the materials that end up as waste. This reveals hidden costs of inefficiency, unlike recording only disposal fees or hiding environmental costs in general overhead.

  1. AIgnore the cost of waste because it is an externality borne by society
  2. BMeasure the total material input, including the cost of materials that become waste, by using material flow cost accountingCorrect
  3. CRecord only the cost of waste disposal fees as environmental costs
  4. DCharge all environmental costs to a central overhead account to avoid distorting product costs

Explanation

Material flow cost accounting tracks physical inputs and outputs, and assigns cost to waste as well as saleable product, exposing the full cost of inefficiency. Recording only disposal fees understates the cost because the purchase cost of wasted material is also lost.

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