Question 1

Section A

ChemCorp produces industrial solvents. Recently, the company was fined $50,000 by the environmental agency for a toxic spill into a local river. Under Environmental Management Accounting (EMA), how should this fine be classified?

Accepted Answer

Apply the quality cost framework to environmental costs. Since the spill reached the external environment (the river) and resulted in a fine, it is an external failure.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Classifying it as an internal failure cost, which would only apply if the spill was contained entirely within the factory and cleaned up before causing external damage.

Section A

ChemCorp produces industrial solvents. Recently, the company was fined $50,000 by the environmental agency for a toxic spill into a local river. Under Environmental Management Accounting (EMA), how should this fine be classified?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 1

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