MLC and the environmental management accounting

Phases of the case study The project has three phases which will be discussed in detail. The first phase identifies the current cost of accounting system in the Methodist Ladies College. The institution currently uses the conventional accounting system that does not apportion the environmental management system. The objective of exploring the current environmental management of the system is comparing the convectional accounting with the environmental management accounting.Advertising We will write a custom case study sample on MLC and the environmental management accounting specifically for you for only $16.05 $11/page Learn More The environmental management accounting involves development of the company resources to ensure that there are appropriate aspects of developing proper mechanisms to account for usage of energy and identifying costs of conserving the energy. The second phase of this study on MLC identifies the cost and revenue opportunities tha t are not recorded when using the traditional accounting methods. The objectives of this phase are two, the first objective is to determine the necessary changes that are appropriate to the system to include all the environment related costs. The second objective is to provide the stakeholders with meaningful information on the costs and opportunities presented through environmental management accounting. The information creates awareness among the stakeholders and provides them with a basis to make changes in the company. The third phase involves trial recording of the changes to determine how change would produce different results from the current management accounting system. The objective of this trial phase is to determine how the Environmental Management contributes to good management by providing information to managers on how to handle purchases in a way that is environmental conscious and cost effective. Black bud accounting practice used in MLC MLC uses the convectional ac counting system that is not environmental conscious. The accounting system is cost oriented and not activity oriented. It classifies the costs in general terms and not as per the source of the cost. The first classification of environmental related expenses is the administration expenses. These costs involve costs such as printing and distribution of newsletters to parents by the school administration. The other cost is the photocopying costs, this is an expense incurred through photocopying of learning material by students as well as teachers. The other generalised expense is water expenses, which are the rates paid to the Water Corp by the institution. The one is the lighting expense that includes the power and electricity expenses within the institution. The other expense recorded in the system is the waste costs that refer to the cost of waste products disseminated from the company (Romney 2009). The environmental impacts associated with MLC’s operations and costs associa ted with the environmental impacts The first environmental impact associated with MLC operations is the paper usage expense. This expense accrues to the photocopying activities within the institution. It includes the cost of buying the plain paper. However, the current accounting system does not record expenses except photocopying labour. It also includes the printing activities done by the students and the energy used in the printing process. All these are classified together as paper usage expense.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The other impact associated with the MLC operations that has a direct impact on the environment is lighting costs. It takes fossil fuel to make electrical energy used in lighting and conserving light automatically means conserving fuel used in the generation of light. The current MLC accounting cists usually includes lighting costs as the onl y energy cost. However, the costs not only result from lighting but also replacement of lighting equipment, wear and tear and cooling of machines using air conditioners. The third environmental impact associated with the environment is the water usage. The institution incurs this expense using water in showers and toilets as well as in the running taps. The other activity interconnecting use of energy is the administrative activities. The administrative purposes involve activities such as printing and dissemination of newsletters to parents. The parents receive newsletters either through the students or by mail. Costs of envelopes and plain paper to print the newsletter, the toners and labour of printing the newsletters are all included in the administrative costs (Romney 2009). Limitations of the existing accounting system with regard to cost savings and how costs can be reclassified to improve decision-making The current accounting system has its limitations. The first limitation of the current accounting system used by the MLC is that it does not provide information on the specific environmental cost. It is complicated, which makes it hard to trace costs involved (Romney 2009). The other challenge of this manner of accounting is that it does not trace the actual sources that incurred the expense because it generalises all environmental costs (Romney 2009). The other limitation is that it does not give insight to the management on how to conserve energy as well as area that costs may be minimised. It provides scanty information on the impact of activities engaged by the institution on the environment. It denies the institution an opportunity to receive funding from parents and friends to assist in the efforts of becoming energy efficient. The traditional accounting system is inappropriate in making organisation energy efficient. The other major aspect of consideration in the organisation is that the organisation may develop its own systems of conserving and generating resources such as using river Swan to cater for its need for water rather than use water from the Water Corp. Benefits of Activity Based Costing to MLC The activity based accounting is beneficial to the company in the sense that it has to work using the areas related to the development of the organisation. The activity based costing is advantageous to the institution mainly because the reporting of expenses enable one to trace the sources that incurred the environment related costs. It establishes responsibility centre and each centre has an account where expenses are recorded.Advertising We will write a custom case study sample on MLC and the environmental management accounting specifically for you for only $16.05 $11/page Learn More This assists the organisation to trace costs and identify opportunities and costs incurred from the environment related expenses. The other major factor of consideration is that it informs the management and the stakeholders on the costs incurred and how each unit incurred the expenses. This makes it easy for the management to make prudent decisions on how to conserve energy as well as how to develop appropriate measures to make the company cost effective. The activity based costing unravel the hidden costs in the conventional accounting such as labour costs and it presents a clear picture on the actual expense incurred when doing a particular activity (Langfield 2009). How costs associated with environmental impacts within MLC can be allocated and what are the limitations associated with the cost drivers identified in the study. The costs identified in the study can be allocated as follows. The power and lighting costs can be classified as costs per square metre such that each cost is assigned as per the responsibility centre that generated that cost. The cost is in such a way that it is saving from the source. In the lighting costs, additional costs such as replacing the lighting equipme nts as well as wear and tear of the power equipments are all considered differently not just as part of lighting expense (Langfield 2009). The other environmental impact cost allocated differently is the water expenses. The water costs are usually a generalised expense. However, the new accounting system allocates the water usage according to the kind of machine or source that releases the water. Water is classified as either shower water, tap water or washing machine water. This makes it easy to identify the outlets that use a lot of water. The other allocation is on the photocopying costs. These costs are usually generalised in the current accounting system. However, the environment management accounting classifies the cost into different categories. The first one is the labour used in the photocopying prices; it also includes the cost of the plain paper. In the new accounting process, expenses such as use of envelope are part of the photocopying expense (Langfield 2009). The wast e costs are also not generalised in the environment management accounting where the expenses are classified as per the specific activity. Activities such as tipping fees are distinct from the waste costs that are the actual price of the material put to waste. It also involves costs of disposing the equipments either through paying someone to dispose the equipment or other expenses such as the development expense.Advertising Looking for case study on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The benefits to the responsibility centres within AMP from maintaining records on both energy and water usage Maintaining the records of energy and water usage provide a clear picture of how each responsibility centre contributes to the energy and water expenses. This makes every part of the institution participate to the use of energy, and the energy expenses cease to be generalised expense without a clear outline on who uses the energy. The other benefits that result from the use of energy are the increased awareness about personal contribution to the environmental related expenses. It provides a motivation to control and reduce those costs in order to prevent losses that are likely to occur. The motivation results only when there are specific accounting that indicates the responsibility centre responsible for each cost. It also enables the responsibility centre to classify the expenses further into sub centres that serve as an indication to the development of the company resource s. The other effect of the responsibility centres’ recording their expenses is that it results in identifying opportunities of cutting down the costs unlike when using the convectional method of cost accounting. It assists in identifying other costs related to the major expense. When there is recording in the sub-centre it is easier to identify costs that relate to the major expense such as labour costs or breakage and maintenance costs involved as opposed to when the costs are generalised. The institution saved more than twenty seven thousand dollars when allocations of expenses were through responsibility centre records. How could MLC develop additional records for identifying, allocating, and managing the costs associated with waste and the associated financial benefits? There are additional records that the MLC must have to ensure that there is appropriate accountability on how the resources are used. The first additional record that is necessary in the incorporation of t he environmental management accounting in the MLC is the photocopy expenses. The photocopy expenses include renting photocopiers to use as well as the labour and time spent in operating the photocopiers. It includes the cost of the plain paper used in photocopying. Such records in the sub centre make it easy to see how the organisation uses the resources (Maskell 2003). The other aspect of consideration is having the company to include records of expenses incurred in administration and specifically the newsletter expenses such as envelopes and the labour involved in the preparation of the newsletters. The other additional records relates to the water expenses, to account for water usage it is imperative to classify the use of water as per the way or the equipment used to discharge water. Having records of the volumes of water released using the taps, washing machines, toilets and other domestic purposes make it easy to identify and to trace where the water expenses originate from an d how to control them (Maher 2005). Waste expenses may also need additional records to include costs such as the labour incurred in disposing the waste. Other additional record in waste expense is that cost of buying dustbins and other waste handling equipment. The other cost that is usually not accounted for or recorded in the conventional methods yet it is a major environmental cost is the cost of the waste material. This refers to the cost of the material that is disposed. Other cost that applies to the waste materials is the cost of training personnel as well as the stakeholders of the institution on how to handle waste. Currently, MLC uses the paper recycling techniques to reuse the papers. However, it requires training of staff and students on how to handle papers meant for recycling (Bruns Kaplan 1987). How a life cycle costing system (LCC) could be implemented within, MLC and what would the environmental impact issues that would need to be considered and cost within the LCC exercise The life cycle costing usually refers to the costing exercise that looks into the total cost of equipment rather than the purchase cost of equipment. This applies when making purchasing decisions on equipments that may have implications on the environmental management accounting. The total cost refers to the additional cost of having equipment and it includes the purchasing costs, maintenance costs as well as the waste cost. The waste cost is the coast of disposing the equipment. When someone considers all those costs mailing decision on the appropriateness and the effectiveness of the product used usually applies (Bruns Kaplan 1987). The lifecycle costing also considers the life cycle of the equipment or the durability of the product bought. This is the length that particular equipment is expected to last while it is effective and efficient in its use. This aspect also includes warranty of the equipment and the cost of maintaining the equipment. The other expense is the development expense where an organisation spends its time to develop appropriate structure to cater for the organisational needs of the particular equipment. The following are some of the environment impact issues that need consideration as lifecycle costing issue. The first environmental impact issue is the air conditioners. The main use of the air conditioners is to provide cooling for the machines used in the institution to prevent overheating of the machines. The project hopes to install three air conditioners because the cost is high yet it is right in consideration of the fact that replacing damaged machines is more expensive. The other cost is the swimming pool by closing down the pool and use of another swimming pool from the neighbouring school (Maher 2005). The other area where lifecycle costing will apply is development of new classrooms as the current classrooms have an occupancy rate of eighty per cent. This can be done through the development of timetables that ensure there is an occupancy level of one hundred per cent. This will prevent additional expenses in development of the classes and focus the resources in other areas that are significant in the project. The other area where the life costing will apply is in the water conservation where the institution is looking for ways of reducing the water expenses by building new taps and toilet flushers that use six litres of water than the flushers that use eleven litres of water. This will reduce the amount of money used on water because the quantity of water required is reduced. When expenses are reduced where appropriate, the cost will reduce which results to increase in the revenue generated from the project. Considering these aspects using the lifecycle costing ensures that the management makes appropriate and cost effective decisions. References Bruns, W Kaplan, S 1987, Accounting and management: A field study perspective, Harvard Business School Press, Massachusetts. Langfield, K 2009, Manag ement accounting: Information for managing and creating value, 5th edition, McGraw Hill, New York. Maher, L 2005, Fundamentals of cost accounting, McGraw-Hill, New York. Maskell, B 2003, Practical lean accounting, Productivity Press, New York. Romney, M 2009, Accounting information systems, Pearson Prentice Hall, Upper Saddle River. This case study on MLC and the environmental management accounting was written and submitted by user Graysen K. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.