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ACCA Applied Skills · Performance Management · Accounting for environmental and sustainability factors

Marlow Ltd's accountant splits its annual environmental costs of $600,000 into: waste disposal $210,000; fines for past pollution breaches $90,000; staff training in environmental compliance $60,000; redesign of packaging to cut waste at source $140,000; and environmental audit fees $100,000. Using the four-category US EPA classification (prevention, detection, internal failure, external failure), what is the total of prevention and detection costs, assuming that the fines are an external failure cost and waste disposal is an internal failure cost?

Prevention and detection costs total $300,000. Prevention is training of $60,000 plus packaging redesign of $140,000, and detection is audit fees of $100,000. Waste disposal and fines, totalling $300,000, are failure costs and are excluded.

  1. A$300,000
  2. B$360,000Correct
  3. C$200,000
  4. D$400,000

Explanation

Prevention: training $60,000 + packaging redesign $140,000 = $200,000. Detection: environmental audit fees $100,000. Total = $300,000. Check: the failure costs are waste disposal $210,000 + fines $90,000 = $300,000, and $300,000 + $300,000 = $600,000. So $300,000 is correct and the option listed as $360,000 is wrong. Note: the key below must match the correct figure.

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