Ec. Ionut Bandrabur26, Ecaterina Teodoroiu StreetPanciu, Vrancea, 625401, RomaniaPhone: +40741623593E-mail: ionut.bandrabur@gmail.com

Environmental Cost Accountingrequirements and solutions for

Romanian enterprises

May 2006

Objectives on ECA

For implementing eco-efficiency concept in Romanian manufacturing business area it is necessary to reducereduce before to recyclerecycle:

reduction of operational costs reduction of energy and water consumption reduction of emissions, harmful substances and waste

May 2006

Some definitions Sustainable developmentSustainable development means: Other form of production (with a view of

environmental effects); Other uses of raw materials and energy. In the spirit of Eco-efficiencyEco-efficiency, top priority is

to realize the product or to provide the service while reducing energy and materials needs.

Environmental Cost Accounting – 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 Material flow

accounting accounting monetary units – Process costing Process costing

systemsystem and Activity-based CostingActivity-based CostingMay 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:

1) Creation a Flow Model;2) Collection of Material and Cost

Data;3) 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 costsAllocate 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

BSETUP

€60 / 30 setups=

€2 per Setup

Resources Activities ProductsDrivers

40 hours

60 hours

Lots = 5

Lots = 35

DriversSCHEDULING

€40 / 40 Lots =

€1 per LotPERSONNEL

100 Hours

€1 per Hour

A

€35

€40

€75

€25

€5

€20

Setups = 20

Setups = 10

Personnel Exp.€100

Lots Scheduled - 40Setups Performed - 30 May 2006