ACCA Strategic Professional · Advanced Performance Management · Sustainability
Kiroro Ltd is introducing environmental management accounting. Its accountant identifies the following annual costs: energy and water bills of $120,000; waste disposal fees of $45,000; and the purchase cost of materials that end up as scrap, $180,000. The accountant argues that the scrap material cost is an environmental cost that conventional accounts hide within product cost. Which technique focuses on tracking the physical flows of materials, including waste, and assigning cost to them?
Material flow cost accounting is correct. It follows physical flows of materials through the process and gives a monetary value to waste, so scrap cost no longer hides in product cost. Activity-based, life cycle and target costing do not centre on tracking material flows and waste.
- AMaterial flow cost accountingCorrect
- BActivity-based costing
- CLife cycle costing
- DTarget costing
Explanation
Material flow cost accounting tracks inputs, outputs and waste in physical and monetary terms, so the cost of materials that become scrap is made visible. Activity-based costing allocates overheads by cost drivers. Life cycle costing covers costs across a product's life, and target costing works back from a market price.
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