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ACCA Strategic Professional · Advanced Performance Management · Sustainability

Tessin Retail is considering a new refrigeration system. Management accounting reports show only the purchase price and energy cost. An environmental management accountant argues that a life cycle costing approach would give a better decision. Which feature of life cycle costing from an environmental perspective best supports that argument?

Life cycle costing helps because it captures costs across the whole life of the asset, including end-of-life disposal, decommissioning and environmental costs, which conventional reports ignore. This gives a fuller basis for comparing the refrigeration options than purchase price and energy cost alone.

  1. AIt allocates all costs to the period in which they are incurred to simplify budgeting
  2. BIt includes end-of-life disposal, decommissioning and environmental costs that fall after the asset's useful operationCorrect
  3. CIt restricts analysis to costs borne by the company, ignoring external costs
  4. DIt focuses on the production phase because that is where most cost is committed

Explanation

Environmental life cycle costing extends the analysis to the whole life, including design, use, and end-of-life costs such as decommissioning, refrigerant disposal and clean-up that conventional reports omit. Options on period allocation or production focus miss this. Most costs are in fact committed at design, not production.

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