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ACCA Strategic Professional · Advanced Performance Management · Sustainability

Hartwell Energy's management accountant is introducing environmental management accounting. The company's cost records show a general 'overheads' account that includes waste disposal fees, energy costs and cleaning of contaminated equipment. Which is the main weakness of this treatment from a sustainability viewpoint?

The main weakness is that environmental costs are hidden in general overheads. Managers cannot see, trace or control them, and products are mis-costed, so opportunities to reduce waste and energy use and to price properly are missed.

  1. AEnvironmental costs are hidden in overheads, so they are not visible or managed and products are mis-costedCorrect
  2. BEnvironmental costs become too visible to be used in pricing
  3. COverheads are always fixed so they cannot be reduced
  4. DFinancial statements would be non-compliant with every accounting standard

Explanation

Burying environmental costs in general overheads hides them, so managers cannot identify, trace or reduce them, and product costs are distorted. Overheads are not always fixed, and the issue is one of management information, not automatic non-compliance.

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