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ACCA Strategic Professional · Advanced Performance Management · Sustainability

Marlow Plastics Ltd records its costs in a single ledger. Management now separates 'environmental costs' from other costs and wants to include the cost of waste material bought but not turned into saleable product. Under environmental management accounting (EMA) practice, how should this cost be classified?

The cost of materials bought but lost as waste is classified as an environmental cost, because it is the purchase cost of non-product output. EMA separates it from general overheads so managers can see and reduce it, and it is an internal cost, not an external one.

  1. AAs a conventional cost that stays in general production overheads and is not separately identified
  2. BAs an environmental cost, being the purchase cost of non-product output (waste)Correct
  3. CAs a hidden cost related only to future regulatory fines
  4. DAs an external cost borne by society and not recorded by the firm

Explanation

EMA treats the purchase and processing cost of material that ends up as waste (non-product output) as an environmental cost, because it was bought but generates no revenue. Leaving it buried in overheads is the conventional approach that EMA is designed to correct. It is an internal cost of the firm, not an externality.

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