To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 17 ENVIRONMENTAL COST MANAGEMENT QUESTIONS FOR WRITING AND DISCUSSION Firms are interested in environmental costing because the costs of complying with environmental regulation have increased and because improving environmental performance can reduce costs and provide a competitive advantage Ecoefficiency is the belief that organizations can produce more goods and services while simultaneously reducing negative environmental consequences, resource consumption, and costs The six incentives, or causes, for ecoefficiency are (1) customers desire to buy clean goods, (2) better employees and greater productivity, (3) lower cost of capital and cheaper insurance, (4) societal benefits and improved image, (5) innovations and searches for new opportunities, and (6) cost reductions and increased competitiveness An environmental cost is a cost incurred because poor environmental quality exists or may exist The four categories of environmental costs are prevention, detection, internal failure, and external failure Prevention costs are costs incurred to prevent degradation to the environment Detection costs are incurred to determine if the firm is complying with environmental standards Internal failure costs are costs incurred to prevent emission of contaminants to the environment after they have been produced External failure costs are costs incurred after contaminants have been emitted to the environment Realized external failure costs are environmental costs paid for by the firm Unrealized or societal costs are costs caused by the firm but paid for by third parties (members of society bear these costs) Full environmental costing means that all environmental costs are assigned to the product, including societal costs Full private costing means that only private costs are assigned to products 581 Functional-based costing must first isolate the environmental costs and assign them to an environmental costing pool Next, a pool rate is computed using direct labor hours or machine hours (or some other unit-level driver) Finally, the rate is used to assign environmental costs to products based on their usage of direct labor hours or machine hours The approach breaks down when there is product diversity because unit-level drivers would not likely reflect the environmental resources being consumed by each product Activity-based costing first identifies environmental activities and determines the cost of each activity Next, activity rates are computed Finally, environmental costs are assigned to each product based on their consumption of individual environmental activities 10 The environmental cost per unit of product signals two things First, it indicates how much opportunity exists for improving environmental and economic performance Second, it is a measure of the relative cleanliness of products The “more dirty” products should receive greater attention than the ones that are “more clean.” 11 Life-cycle assessment is an approach that identifies the environmental consequences of a product through its entire life cycle and then searches for opportunities to obtain environmental improvements 12 The environmentally important life-cycle stages of a product are resource extraction, product manufacture, product use, and recycling and disposal 13 The three steps of life-cycle assessment are inventory analysis, impact analysis, and improvement analysis Inventory analysis specifies the materials and inputs needed and the resulting environmental releases in the form of solid, liquid, and gaseous residues Impact analysis assesses the envi- To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ronmental effects of competing designs and provides a relative ranking of those effects Improvement analysis has the objective of reducing the environmental impacts revealed by the inventory and impact steps 14 15 Life-cycle costing improves life-cycle assessment by assigning economic consequences to the environmental impacts identified in the inventory and impact steps Assessing the financial consequences allows competing designs to be compared on a common measure, allowing an environmental ranking of competing designs The justification for adding an environmental perspective to the Balanced Scorecard is based on the concept of ecoefficiency If ecoefficiency is a valid concept, then adding an environmental perspective is legitimate because improving environmental performance can be the source of a competitive advantage 16 The five core objectives of the environmental perspective are: (1) to minimize the use of hazardous materials; (2) to minimize the use of raw or virgin materials; (3) to minimize energy requirements for production and use of the product; (4) to minimize the release of solid, liquid, and gaseous residues; and (5) to maximize opportunities to recycle 17 Minimizing the use of raw materials is an environmental issue because many raw materials are limited in quantity and are nonrenewable For example, only a finite amount of petroleum reserves exists Thus, conserv- 582 ing their use ensures that future generations will have access to them 18 Possible measures for minimizing the release of residues include pounds of toxic materials, cubic meters of effluents, tons of greenhouse gases produced, and percentage reduction of packaging materials 19 Agree Assuming the concept of ecoefficiency is valid, then all environmental failure activities should be classified as nonvalueadded These activities represent the consequences of inefficient production approaches, and adopting more efficient approaches can eliminate the need for these types of activities 20 Design for the environment means that efforts are made to design products and processes to minimize environmental degradation This approach covers the entire life cycle and affects products, processes, materials, energy, and recycling 21 The value of financial measures of environmental performance is easy to identify: environmental improvements should produce significant and favorable financial consequences If ecoefficient decisions are being made, then environmental costs should decrease as environmental performance improves Examples of financial measures include hazardous materials as a percentage of total materials cost, cost of energy usage (and the trend), total internal failure costs, total external failure costs, prevention costs, and detection costs To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com EXERCISES 17–1 d e d a e c b e 10 11 12 a e d b 17–2 The idea that economic efficiency is equivalent to pollution is a myth Quite the opposite appears to be true Ecoefficiency means that more goods and services can be produced while simultaneously reducing negative environmental impacts Ecological and economic performance can and should be complementary Several factors support this view First, customers are demanding cleaner products Second, better employees prefer to work for environmentally clean firms Third, environmentally responsible firms tend to capture external benefits such as lower cost of capital and lower insurance rates Fourth, improving environmental performance produces significant social benefits and enhances the ability to sell products and services Fifth, improving environmental performance awakens within managers a need to innovate Sixth, improving environmental performance reduces environmental costs and may create a competitive advantage Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their needs To believe that the state has exclusive responsibility for solving environmental problems and fostering sustainable development ignores the role of ecoefficiency If improving environmental performance improves economic efficiency, then firms have an incentive to solve environmental problems Ecoefficiency is compatible with, and supportive of, sustainable development Assuming that ecological and economic efficiency are compatible, then the role of government is to encourage and foster the market forces that will lead to improved environmental quality 583 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–3 External failure costs for the environmental model are made up of two categories: those paid for by the firm and those paid for by a third party (society) In the TQM model, all external failure costs are assumed to be paid for by the firm The external failure cost curve is simply the horizontal axis because the firm pays for nothing The total cost curve is the control cost curve (the sum of preventive and detection costs) The incentive is to degrade as much as possible to lower control costs Thus, the optimal operating point from the firm’s perspective is total pollution because all external failure costs are paid for by someone else Ecoefficiency has no meaning in this extreme case The role of government here is to convert the externalities to private costs Regulation is required to enable ecoefficiency—to make it an operable concept 17–4 10 11 12 13 14 15 16 Prevention (SD) Prevention (SD) Internal failure (SD) External failure (societal) Detection (SD) Prevention (SD) Detection External failure (societal) 584 Detection (SD) External failure (societal) Prevention (SD) External failure (private) Internal failure (SD) Detection (SD) Internal failure Detection (SD) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–5 Lemmons Pharmaceuticals Environmental Cost Report For the Year Ended December 31, 2008 Environmental Costs Prevention costs: Environmental studies Environmental training $ 240,000 150,000 Detection costs: Testing for contamination $ 1,200,000 Measuring contamination levels 120,000 Internal failure: Treating toxic waste Operating equipment Maintaining equipment $ 9,600,000 1,970,000 720,000 External failure: Inefficient materials usage Cleanup of soil Totals $ 2,400,000 3,600,000 $ 390,000 Percentage* 0.33% 1,320,000 1.10 12,290,000 10.24 6,000,000 $20,000,000 5.00 16.67%** *Of operating costs ($120,000,000) **Rounded Relative percentages (rounded): Prevention: Detection: Internal failure: External failure: 0.33% / 16.67% 1.10% / 16.67% 10.24% / 16.67% 5.00% / 16.67% = 2.00% = 6.60% = 61.40% = 30.00% This distribution reveals that the company is paying little attention to preventing and detecting environmental costs To improve environmental performance, much more needs to be invested in the prevention and detection categories 585 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–5 Concluded Both items should be added to the external failure category in the report The first item would add $2,100,000 and is a private cost The second adds $4,800,000 and is a societal cost The amount reported for this category would then become $12,900,000, and the total environmental cost would increase to $26,900,000 Under a full-costing regime, the entire $6,900,000 should be included in the report Often, however, only private costs will be included 17–6 Activity rates: Packaging rate: Energy rate: Toxin release rate: Pollution rate: $5,400,000/5,400,000 $1,440,000/1,800,000 $720,000/3,600,000 $1,680,000/600,000 = = = = $1.00 per pound $0.80 per kilowatt-hour $0.20 per pound $2.80 per machine hour Unit cost: Herbicide Packaging: $1.00 × 3,600,000 $1.00 × 1,800,000 Energy: $0.80 × 1,200,000 $0.80 × 600,000 Toxin releases: $0.20 × 3,000,000 $0.20 × 600,000 Pollution control: $2.80 × 480,000 $2.80 × 120,000 Total Unit cost per pound Insecticide $ 3,600,000 $ 1,800,000 960,000 480,000 600,000 120,000 1,344,000 $ 6,504,000 ÷ 12,000,000 $ 0.542 336,000 $ 2,736,000 ÷ 30,000,000 $ 0.0912 The herbicide has the highest environmental cost per unit So, to the extent that the per-unit environmental cost measures environmental damage, we can say that this product causes more problems than the insecticide 586 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–6 Concluded Excessive usage of materials and energy is classified as an external failure cost (once too much is used, then customers and society bear the cost—the effect has been “released” into the environment) These costs would increase the toxin release rate by $0.90 per pound ($3,240,000/3,600,000) This increase, in turn, would increase the amount assigned to each product: $2,700,000 to the herbicide and $540,000 to the insecticide Unit costs, then, would increase by $0.225 for the herbicide ($2,700,000/12,000,000) and $0.018 for the insecticide ($540,000/30,000,000) This is a “full-costing” approach, which many feel ought to be the way environmental costs are assigned However, it is often difficult to estimate the societal costs, and many firms restrict their cost assignments to private costs 17–7 New activity rates: Packaging rate: Energy rate: Toxin release rate: Pollution rate: Engineering rate: Treatment rate: $2,430,000/4,860,000 $960,000/1,200,000 $180,000/1,800,000 $1,680,000/600,000 $720,000/24,000 $486,000/4,860,000 = $0.50 per pound = $0.80 per kilowatt-hour = $0.10 per pound = $2.80 per machine hour = $30 per engineering hour = $0.10 per pound Note: Since pounds of packaging is the driver for both packaging and packaging treatment, the rates could be combined The treatment rate could be part of the packaging rate (giving a total rate of $0.60 per pound) The 4,860,000 pounds used for the rate is 90% of the original 5,400,000 pounds 587 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–7 Continued Unit cost: Herbicide Packaging and treatment: $0.60 × 3,240,000 $0.60 × 1,620,000 Energy: $0.80 × 800,000 $0.80 × 400,000 Toxin releases: $0.10 × 1,500,000 $0.10 × 300,000 Pollution control: $2.80 × 480,000 $2.80 × 120,000 Engineering: $30 × 18,000 $30 × 6,000 Total Unit cost per pound Insecticide $ 1,944,000 $ 972,000 640,000 320,000 150,000 30,000 1,344,000 336,000 540,000 $ 4,618,000 ÷ 12,000,000 $ 0.3848** 180,000 $ 1,838,000 ÷ 30,000,000 $ 0.0613** **Rounded Savings: Before* After Total savings Pounds Unit savings Herbicide $ 6,504,000 4,618,000 $ 1,886,000 ÷ 12,000,000 $ 0.1572** Insecticide $ 2,736,000 1,838,000 $ 898,000 ÷ 30,000,000 $ 0.0299** Total $9,240,000 6,456,000 $2,784,000 *See the solution to Exercise 17-6 **Rounded This illustrates that improving environmental performance can improve economic efficiency, consistent with the claims of ecoefficiency 588 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–7 Concluded Excessive energy and materials usage and releasing toxins are external failure activities; operating pollution control equipment is an internal failure activity Engineering is a prevention activity (added during the improvement process) The environmental improvements have reduced total and per-unit operating costs for each product This now makes price reductions possible, reducing customer sacrifice and potentially creating a competitive advantage The reduced environmental damage may also increase product and company images, with the potential of attracting more customers Other possible benefits that may contribute to a competitive advantage include a lower cost of capital and lower insurance costs 17–8 Both use about the same quantity of primary raw materials; however, tallow is a renewable resource, whereas petrochemical stocks are not Thus, an environmental advantage on this dimension belongs to tallow Water usage, though, offsets some of this advantage Tallow requires a much heavier usage of water (10 times the amount) Although water is renewable, it is also a limited resource and has a number of competing uses Energy usage is in favor of tallow, but only slightly (120 total kilowatt-hours versus 135 for petrochemicals) Emissions to the environment are more difficult to assess Two are in favor of petrochemicals and two in favor of tallow There is insufficient information to evaluate the relative damage caused by each type of contaminant Thus, at this point, it is difficult to determine which of the two is more environmentally friendly One might try the tallow approach and argue that it is more compatible with the concept of sustainable development Using tallow may preserve more petrochemical stocks for future generations—why use the petrochemical stock approach when it is unnecessary and it contributes to the depletion of a scarce resource? 589 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–8 Continued Environmental impact cost: Petrochemical Raw materials: $0.40 × 990 $0.60 × 935 Water: $0.50 × 56 $0.50 × 560 Energy: $1.20 × 135 $1.20 × 120 Contaminants: Air: $500 × 9* $500 × 9* Liquid: $60 × 7** $60 × Solid: $20 × 87 $20 × 176 Cost per 1,000 kg $ Tallow 396 $ 561 28 280 162 144 4,500 4,500 420 300 1,740 $ 7,246 3,520 $ 9,305 *45/5 =9 **If dumped, the cost doubles The lowest cost is assumed The petrochemical approach has the lowest environmental cost per unit Using cost as a summary index, the petrochemical approach should be chosen Cost is limited as a summary measure because it often reflects only private costs In this case, more than private costs should be reflected For example, there is no indication that societal costs are reflected in the costs of contaminants Further, there is a societal benefit from using tallow instead of petrochemicals because it is a renewable resource This also is not reflected in the summary cost measure Estimating these two effects and including them would strengthen the measure 590 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–13 Concluded • Ozone-depleting substances: pounds (tons) released; objective: minimize release of residues • Hazardous waste disposal: tons of residues landfilled; objective: minimize hazardous waste • Hazardous waste materials: pounds (tons) produced; objective: minimize hazardous waste • Nonhazardous waste disposal: tons sent to landfills; objective: minimize raw materials • Nonhazardous waste materials: Pounds of waste/pounds of materials issued; objective: minimize raw materials • Recycling materials: pounds of materials recycled; objective: maximize opportunities to recycle • Energy usage: kilowatts, BTUs; objective: minimize energy consumption • Packaging: pounds of packaging; objective(s): minimize raw materials and minimize residues Note: Packaging actually affects several objectives By reducing the weight of packaging, less materials are used, and raw materials are minimized By reducing the weight, less landfill is required, reducing the solid waste Increasing the recyclability also reduces solid waste and demand for raw materials Finally, if the packaging can be incinerated, it may produce energy and reduce the use of nonrenewable energy sources Investing in prevention and detection activities should decrease the costs of failure activities Furthermore, if ecoefficiency is a true concept, then the reductions in failure costs should exceed the costs of prevention That is, it is more efficient to be environmentally responsible 598 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–14 2006 2007 2008 Environmental benefits: Ozone-depleting substances, cost reductions $960,000 $1,600,000 $2,560,000 Environmental costs: Engineering design 1,280,000 640,000 80,000 In 2006, the cost reductions were less than the design cost However, in the following year, the cost reduction achieved matched the design cost, and the reductions achieved in the prior year are costs avoided in 2007 as well Thus, the total savings are $1,600,000, the sum of last year’s ($960,000) plus this year’s ($640,000) In 2006, the design costs are $80,000, and the pollution costs are reduced by an additional $960,000 Thus, the total savings per year now amount to $2,560,000 (the sum of the current-year savings plus the costs avoided from improvements of prior years) How much is an annuity of $2,560,000 worth? Certainly more than the $2,160,000 paid for engineering design activity in 2005, 2006, 2007, and 2008! This seems to support ecoefficiency: improving environmental performance improves economic efficiency 599 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–15 Avade Company Environmental Financial Statement For the Year Ended December 31, 2008 Environmental benefits: Income: Recycling income Increased sales Current savings: Cost reductions, hazardous waste Cost reductions, contaminant releases Cost reductions, scrap production Cost reductions, pollution equipment Energy conservation savings Remediation savings Reduced insurance and finance costs Ongoing savings: Cost reductions, hazardous waste Cost reductions, contaminant releases Cost reductions, scrap production Cost reductions, pollution equipment Energy conservation savings Remediation savings Total benefits 600 $ 200,000 1,600,000 800,000 1,200,000 200,000 640,000 144,000 880,000 640,000 400,000 800,000 200,000 400,000 144,000 800,000 $9,048,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–15 Concluded Environmental costs: Prevention: Designing processes and products Training employees Detection: Measuring contaminant releases Inspecting processes Internal failure: Producing scrap Operating pollution equipment External failure: Disposing of hazardous waste Releasing air contaminants Using energy Remediation Total costs $ 800,000 320,000 560,000 640,000 1,000,000 1,040,000 400,000 2,000,000 1,152,000 1,520,000 $9,432,000 The total environmental costs in 2006 were $14,280,000 The total costs in 2008 were $9,432,000, a significant decrease Adding to this the fact that sales increased because of an improved environmental image, financing and insurance costs decreased, and recycling income increased, then there is strong evidence of increased efficiency Moreover, the ratio of benefits to costs in 2006 is approaching one Thus, ecoefficiency is working, and the firm is strengthening its competitive position 17–16 Activity rates: Hazardous waste: Measurement: Contaminants: Scrap: Equipment: Designing: Energy: Training: Remediation: $2,400,000/2,400 = $1,000 per ton $120,000/60,000 = $2 per transaction $6,000,000/3,000 = $2,000 per ton $2,100,000/600,000 = $3.50 per pound $3,120,000/6,240,000 = $0.51 per hour $600,000/24,000 = $25 per hour $2,160,000/21,600,000 = $0.10 per BTU $120,000/1,200 = $100 per hour $4,800,000/240,000 = $20 per hour 601 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–16 Continued Unit cost calculation (2006): Luxury Model Hazardous waste: $1,000 × 240 $1,000 × 2,160 Measurement: $2 × 12,000 $2 × 48,000 Contaminants: $2,000 × 300 $2,000 × 2,700 Scrap: $3.50 × 300,000 $3.50 × 300,000 Equipment: $0.50 × 1,440,000 $0.50 × 4,800,000 Designing: $25 × 18,000 $25 × 6,000 Energy: $0.10 × 7,200,000 $0.10 × 14,400,000 Training: $100 × 600 $100 × 600 Remediation: $20 × 60,000 $20 × 180,000 Total cost Units Unit cost $ Standard Model 240,000 $ 2,160,000 24,000 96,000 600,000 5,400,000 1,050,000 1,050,000 720,000 2,400,000 450,000 150,000 720,000 1,440,000 60,000 60,000 1,200,000 $5,064,000 ÷ 2,400,000 $ 2.11 3,600,000 $ 16,356,000 ÷ 3,600,000 $ 4.54* *Rounded The unit cost information provides an index of the environmental performance of each product It thus can serve as a benchmark for evaluating subsequent efforts to improve environmental performance The unit environmental cost also provides some indication as to where environmental improvement activities should be focused 602 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–16 Continued 2006 unit cost for the three relevant items: Luxury Model Hazardous waste: $1,000 × 240 $1,000 × 2,160 Contaminants: $2,000 × 300 $2,000 × 2,700 Equipment: $0.50 × 1,440,000 $0.50 × 4,800,000 Total Units Unit cost Standard Model $ 240,000 $ 2,160,000 600,000 5,400,000 720,000 $1,560,000 ÷ 2,400,000 $ 0.65 2,400,000 $ 9,960,000 ÷ 3,600,000 $ 2.77* Luxury Model Standard Model 2008 unit cost for the three relevant items: Hazardous waste: $1,000 × 120 $1,000 × 480 Contaminants: $2,000 × 150 $2,000 × 1,350 Equipment: $0.50 × 720,000 $0.50 × 2,400,000 Total Units Unit cost $ 120,000 $ 480,000 300,000 2,700,000 360,000 $ 780,000 ÷ 2,400,000 $ 0.33* 1,200,000 $ 4,380,000 ÷ 3,600,000 $ 1.22* Note: The activity rates are calculated using 2008 costs and assuming activity output remains the same (e.g., $600,000/600 = $1,000 per ton for hazardous waste) *Rounded 603 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–16 Concluded The unit cost reductions: Luxury Model: $0.65 – $0.33 = $0.32 per unit or $768,000 in total Standard Model: $2.77 – $1.22 = $1.55 per unit or $5,580,00 in total Both products appear to be cleaner than before the changes The design decision cost an extra $3,000,000 in 2007 and an extra $600,000 in 2008 Thus, $3,600,000 was spent to produce an annual savings of $6,348,000 Of the costs for the new processes, only $200,000 appears to be a recurring expense Furthermore, the raw materials cost is reduced as well (how much is not given) It appears to be an economically justifiable decision 17–17 i d j c m 10 n a 11 f k e 12 h 13 g b 14 l 604 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–18 The basic issue is which material should be used Presumably, the functionality of the two designs is similar (for example, durability is not an issue) The weight of the polymer product is much less than the steel product and, therefore, uses less raw materials This advantage, however, is counterbalanced by the very high recyclable advantage of steel Only 0.5 pound appears to be lost, while almost all the polymer material is lost (through incineration) While incineration provides an energy source, it also uses up a nonrenewable raw material Steel recycling keeps most of the nonrenewable raw material in play The polymer design, though, does have a product use advantage It causes less petroleum to be consumed per year than the steel product It also uses less energy in the production stage But whether this all offsets the recyclable advantage is unclear The residue picture is also unclear The polymer produces more gaseous residues but less solid residues It would be interesting to know which of the two has the most environmental impact For example, if the gaseous is more serious, then the contamination advantage could flow to the steel product Other information that might be useful is the energy used to produce the raw materials 605 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–18 Continued Life-cycle cost: Polymer Materials: $30 × $15 × 20 Energy: Production: $0.50 × 135* $0.50 × 200* Product use: $0.70 × 66 $0.70 × 110 Contaminants: Gaseous: $100 × 0.4 $100 × 0.2 Solid: $40 × 0.6 $50 × 2.0 Incineration benefit Recycling benefit Total Galvanized Steel $270.00 $300.00 67.50 100.00 46.20 77.00 40.00 20.00 24.00 (2.00) — $445.70 100.00 — (20.00) $577.00 *Pounds × Kilowatt-hours per pound Strengths: This approach provides a single summary measure of the environmental effects It values potential trade-offs For example, cost may act as a surrogate for the relative importance of contaminants If so, then the solid contaminants appear to weigh more than the gaseous Weaknesses: It is sometimes difficult to estimate the value or cost of certain items For example, the recycling benefit of $20 may understate the importance of this variable Furthermore, the incineration benefit does not consider the permanent loss of a nonrenewable resource In fairness, it should be mentioned that these problems are more significant when the cost difference between the two is small, which is not the case in this example 606 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–18 Concluded Although product-use effects and disposal are not included, they have environmental effects caused by the company Furthermore, some of these costs, such as energy efficiency, are borne directly by the consumer Reducing postpurchase costs decreases sacrifice for the customer and increases customer value and therefore may be the source of a competitive advantage Customer demand for cleaner products may also be a good reason for paying attention to these costs Finally, the costs are a signal of economic inefficiency and thus should prompt a search for more ecoefficiency Given the cost difference of $131.30 ($577.00 – $445.70), the polymer design would be selected The recyclable advantage is so understated that it would overcome this difference The favorable cost trade-off for the contaminants is a significant factor in favor of the polymer unit 17–19 Ecoefficiency maintains that improving environmental performance will improve economic efficiency Thus, the environmental dimension is a potential source of a competitive advantage, and it can be logically included as a perspective of the Balanced Scorecard IF environmental engineers are hired and IF employees receive environmental training, THEN employee environmental capabilities will increase; IF employee environmental capabilities increase, THEN the manufacturing process and products will improve and a packaging improvement process can be created; IF packaging improvement occurs and processes and products are improved, THEN packaging materials will be reduced and residue releases will decrease; IF packaging materials are reduced and residue releases decrease, THEN environmental performance will improve; IF environmental performance improves, THEN environmental costs are reduced and environmental certification is achieved; IF environmental costs are decreased, THEN profits increase; IF environmental certification is achieved, THEN the product and company images improve; IF image improves, THEN market share will increase; IF market share increases, THEN revenues will increase; and IF revenues increase, THEN profits will increase 607 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–19 Concluded FINANCIAL Decrease Costs CUSTOMER ENVIRONMENT PROCESSES LEARNING AND GROWTH Reduce Residues Increase Profits Increase Revenues Improve Image Increase Market Share Environ Performance Improve Products Improve Processes Training Employee Capabilities 608 Reduce Packaging Packaging Process Hire Engineers To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–20 Hazardous Waste Tons of Waste 60,000 50,000 50,000 48,000 46,000 40,000 40,000 30,000 20,000 10,000 2005 2006 2007 2008 Year 2005: Hazardous Waste 20% 4% 4% 2% Incinerated Treated Recycled Landfilled Injected 70% 609 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–20 Continued 2008: Hazardous Waste 9% Incinerated Treated Recycled Landfilled Injected 37% 37% 9% 8% In 2005, 90 percent of waste was disposed of using landfill and deep-well injections In 2006, this has dropped to 46 percent, a significant improvement Tons of Sulfates Liquid Residues 120 100 100 92 81 80 73 60 40 20 2005 2006 2007 Year 610 2008 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17–20 Concluded Cost in 2005: Hazardous waste: Incineration Treated Recycled Landfilled Injection Liquid residues Total cost × × × × × 2,000 2,000 1,000 35,000 10,000 $4,000 × 100 × × × × × 15,000 3,000 3,500 15,000 3,500 $4,000 × 73 $70 $100 $10 $50 $60 = $ 140,000 = 200,000 = (10,000) = 1,750,000 = 600,000 $2,680,000 = 400,000 $3,080,000 Cost in 2008: Hazardous waste: Incineration Treated Recycled Landfilled Injection Liquid residues Total cost $70 $100 $10 $50 $60 = $1,050,000 = 300,000 = (35,000) = 750,000 = 210,000 $2,275,000 = 292,000 $2,567,000 Environmental costs are reduced by $513,000 ($3,080,000 – $2,567,000) This is a good reduction, but it may be even more than indicated The reason: future cleanup liabilities may also be reduced, and these savings are not factored into the analysis RESEARCH ASSIGNMENTS 17–21 Answers will vary 17–22 Answers will vary 611 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 612 ... relative damage caused by each type of contaminant Thus, at this point, it is difficult to determine which of the two is more environmentally friendly One might try the tallow approach and argue that... cost is assumed The petrochemical approach has the lowest environmental cost per unit Using cost as a summary index, the petrochemical approach should be chosen Cost is limited as a summary measure... reduced as well (how much is not given) It appears to be an economically justifiable decision 17 17 i d j c m 10 n a 11 f k e 12 h 13 g b 14 l 604 To download more slides, ebook, solutions and test