ExpertEasy2 marksMultiple Choice
ACCA · Question 5 · Environmental Management Accounting
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?
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?
Answer options:
A.
Environmental prevention cost
B.
Environmental detection cost
C.
Environmental internal failure cost
D.
Environmental external failure cost
How to approach this question
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.
Full Answer
D.Environmental external failure cost✓ Correct
In EMA, costs are often categorized similarly to quality costs. External failure costs are incurred after environmental damage has occurred outside the organization. Examples include fines for pollution, cleaning up polluted sites, and loss of reputation.
Common mistakes
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.
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