Questions:
ENVIRONMENTAL COST ASSIGNMENT
Coyle Pharmaceuticals produces two organic chemicals (Org AB, and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs associated with the two products:
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Pounds produced
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7,500,000
|
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18,750,000
|
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Packaging materials (pounds)
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2,250,000
|
|
1,125,000
|
|
Energy usage (kilowatt-hours)
|
750,000
|
|
375,000
|
|
Toxic releases (pounds into air)
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1,875,000
|
|
375,000
|
|
Pollution control (machine hours)
|
300,000
|
|
75,000
|
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Costs of activities:
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|
|
|
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Using packaging materials
|
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$3,375,000
|
|
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Using energy
|
|
900,000
|
|
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Releasing toxins (fines)
|
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450,000
|
|
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Operating pollution control equipment
|
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1,050,000
|
|
Required:
1. Calculate the environmental cost per pound for each product. Which of the two products appears to cause the most degradation to the environment?
2. In which environmental category would you classify excessive use of materials and energy?
3. Suppose that the toxin releases cause health problems for those who live near the chemical plant. The costs, due to missed work and medical treatments, are estimated at $2,025,000 per year. How would assignment of these costs change the unit cost? Should they be assigned?