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Environmental Cost Accounting. requirements and solutions for Romanian enterprises. Ec. Ionut Bandrabur 26, Ecaterina Teodoroiu Street Panciu, Vrancea, 625401, Romania Phone: +40741623593 E-mail: ionut.bandrabur@gmail.com. May 2006. Objectives on ECA.
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Environmental Cost Accounting requirements and solutions for Romanian enterprises Ec. Ionut Bandrabur 26, Ecaterina Teodoroiu Street Panciu, Vrancea, 625401, Romania Phone: +40741623593 E-mail: ionut.bandrabur@gmail.com May 2006
Objectives on ECA For implementing eco-efficiency concept in Romanian manufacturing business area it is necessary to reduce before to recycle: • reduction of operational costs • reduction of energy and water consumption • reduction of emissions, harmful substances and waste May 2006
Some definitions • Sustainable developmentmeans: • Other form of production (with a view of environmental effects); • Other uses of raw materials and energy. • In the spirit ofEco-efficiency, top priority is to realize the product or to provide the service while reducing energy and materials needs. • Environmental Cost Accounting – identification, appropriation and aplication of environmental costs. May 2006
Organisation benefits • Identification of where materials and energy costs are greatest; • Better informed decisions about how non-product outputs minimisation will save your organisation money; • Identification of potential productivity gains; • Demonstrating to investors, financial institutions, customers, employees and the community that your organisation is committed to forward planning and environmental responsability May 2006
Steps toward ECA • State of the Art concerning Romanian situation • Flow cost accounting in: • physical units – Material flow accounting • monetary units – Process costing system and Activity-based Costing May 2006
Cost concepts for Production • Direct materials • Direct labour • Prime cost= cost of direct materials + cost of direct labour • Conversion cost= cost of direct labour + factory overhead • Factory overhead • Direct costs: all costs that can be directly related to a product • Indirect costs: costs offered for a host of different products and services it is very hard to allocate these costs over the different products and services May 2006
Flow cost accounting – what and how? • Flow-Cost Accounting is a material and energy flow-oriented cost accounting approach. • The implementation of FCA is comprised of following steps: • Creation a Flow Model; • Collection of Material and Cost Data; • Allocation of Costs. May 2006
Flow model • Material value and costs; • System value and costs; • Delivery and disposal value and costs. May 2006
Collection of Material and Cost Data • Production order; • Input material; • Product material; • Product area machine. May 2006
Allocation of costs Allocate shared costs using selected methods: • Process costing system; • Activity-Based Costing (ABC). May 2006
Process costing system • Process costing system • Provides unit cost information • Supplies cost data to support management decisions • Furnishes ending values for inventory accounts • Materials Inventory • Work in Process Inventory • Finished Goods Inventory May 2006
Activity-Based Costing (ABC) and Multiple Overhead Rates • ABC is a method of assigning overhead based on a number of different allocation bases (rather than just one). ABC groups overhead costs into Cost Pools. • Model Elements • Resources • Activities • Cost Objects • Resource Drivers • Activity Drivers May 2006
Why ABC/ECA • Conventional systems are not complete • Do not show the consequences of resource management decisions • Do not show the cost of doing business how we do business • Provide few insights about how to improve, or may even encourage actions that damage competitiveness • Do not provide leaders/managers with the information they need to efficiently run their organization. May 2006
ABC basics - example Products Activities Resources Drivers Drivers A SCHEDULING €40 / 40 Lots = €1 per Lot Lots = 35 €35 €40 Setups = 20 40 hours PERSONNEL 100 Hours €1 per Hour €75 SETUP €60 / 30 setups = €2 per Setup 60 hours B Lots = 5 €5 €20 Setups = 10 €25 Personnel Exp. €100 Lots Scheduled - 40 Setups Performed - 30 May 2006