Environmental Cost Allocations to Product Costs

Abstract

          In the present time, nature and environment conservation issues get high attention from stakeholders in the society. Consequently, environmental costs become crucial costs and influence on management process of business. Generally, in the cost accounting system, the majority of enterprises record environmental costs under their manufacturing overhead account. Two methods of manufacturing overhead allocations to products and product cost calculation are implemented among many enterprises: the traditional costing; and the activity-based costing. Among high technology and competition surroundings, combined with nature and environmental conservation issues, environmental costs become an essential part of strategic planning and cost management. In those circumstances, manufacturing overhead allocations based on the traditional costing may not be suitable. Among the aforementioned circumstances, activity-based costing is a new alternative and powerful tool for the enterprises, especially having significantly environmental management costs. It assists them to calculate the costs of products and cost objects correctly and accurately. Furthermore, it brings a large number of benefits to their managers, such as cost management, environmental management. Consequently, the enterprises will get competitive advantage and be capable in the business sustainably.