Coyle Pharmaceuticals produces two chemicals (Chem AB, and Chem XY) used in the production of two of its most wide-selling anti-cancer drugs. Coyle Pharmaceuticals has recently received significant criticism from environmental groups, local residents, and the federal government concerning its environmental performance. The CEO of the company wants to know which product is the main source of the environmental problems. The Management Accountant has assembled the following data to help answer this question: Chem AB Chem XY Pounds of fertilizer produced 6,000,000 5,000,000 Pounds of scrap recycled 80,000 20,000 Packaging materials (kilograms) 2,400,000 1,200,000 Energy usage (kilowatt hours) 800,000 400,000 Engineering hours (process design) 18,000 12,000 Pollution control (machine hours) 300,000 75,000 Pounds of solid residues treated 90,000 30,000 Inspection hours (environmental) 30,000 15,000 Cleanup hours (local lake) 24,000 6,000 Toxic releases (pounds into air) 1,875,000 375,000 Additionally, the following environmental activity costs were reported: Activity Cost RM Recycling scrap 1,000,000 Using packing materials inefficiently 3,600,000 Using energy inefficiently 960,000 Designing process 450,000 Operating pollution control equipment 1,050,000 Treating residues 1,800,000 Inspecting processes 360,000 Cleaning up lake 600,000 Releasing toxins (fines) 450,000 Required : Calculate the environmental cost per pound for each product and determine which of the two products appears to cause the most degradation to the environment? In which environmental category would you classify the above activity cost?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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Coyle Pharmaceuticals produces two chemicals (Chem AB, and Chem XY) used in the production of two of its most wide-selling anti-cancer drugs. Coyle Pharmaceuticals has recently received significant criticism from environmental groups, local residents, and the federal government concerning its environmental performance. The CEO of the company wants to know which product is the main source of the environmental problems. The
Additionally, the following environmental activity costs were reported:
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Calculate the environmental cost per pound for each product and determine which of the two products appears to cause the most degradation to the environment? |
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In which environmental category would you classify the above activity cost?
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Critically evaluate if life cycle cost assessment would provide a stronger evidence for the environmental suitability of each product. -introduction -inventory analysis -impact analysis -improvement analysis –discussion on balanced scorecard -conclusion
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