Skip to content

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

Which of the following is an example of an environmental prevention cost, as classified under the usual four-category approach to environmental costs?

Designing a production process to generate less waste is a prevention cost, because it is spent to stop environmental damage occurring. Clean-up, fines and compensation arise after damage has happened, so they are correction or failure costs rather than prevention costs.

  1. ACost of designing a production process to generate less wasteCorrect
  2. BCost of cleaning up a spillage after it has occurred
  3. CFines paid for breaching emission limits
  4. DCompensation paid to residents after a pollution incident

Explanation

Prevention costs are incurred to stop environmental damage arising, such as redesigning processes to reduce waste. Clean-up of a spillage is a correction cost, while fines and compensation are external failure costs. The clean-up option is wrong because it is incurred after the damage has happened.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for environmental and sustainability factors shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for environmental and sustainability factorsFree diagnostic mock

More Accounting for environmental and sustainability factors questions