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

Under the classification of environmental costs used in management accounting, which of the following is an example of an environmental prevention cost?

Training employees in pollution-reducing production methods is a prevention cost, because it is spent to stop environmental damage occurring. Fines, land clean-up and compensation are incurred after damage has happened, so they are failure costs rather than prevention costs.

  1. AFines paid after a spill breaches a discharge permit
  2. BTraining employees in pollution-reducing production methodsCorrect
  3. CCost of cleaning up contaminated land after an accident
  4. DCompensation paid to residents affected by emissions

Explanation

Prevention costs are incurred to stop environmental damage arising in the first place, such as staff training in cleaner methods. Fines, clean-up and compensation arise after damage has occurred, so they are failure costs, not prevention costs.

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