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Environmental Accounting

1. How can allocating overhead incorrectly impact pricing and profitability?

2. How can environmental accounting save companies money in the capital investments?

3. What is the difference between total cost assessment and life cycle cost assessment?

4. What is the distinction between Full Cost Accounting, Total Cost Accounting, and Total Cost Assessment. All three sound like the same thing, but they aren't. Define the ones that are useful terms, and point out which term is meaningless in the accounting field (and therefore you should immediately forget it).

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Step 1
Allocating overhead incorrectly impacts both pricing and profitability. Incorrect allocation of overheads means that the cost of production of each product is calculated wrongly. A higher overhead is allocated to a product than what it actually uses, and a lower overhead is allocated to a product that uses higher overhead. The result is that the company which uses costs as a basis of pricing incorrectly prices its products. If the pricing is incorrectly low the company's profitability suffers. Wrong allocation of overheads does not allow the company to identify the profitable products and the loss making products. The result is that loss making products eat into the profits of the company and the profitability declines.

Step 2
Environmental accounting saves companies money in capital investments. Environmental accounting spots resource use, and communicates cost of the company on the environment. Environmental accounting identifies capital investments that have high costs. Costs include money to clean up contaminated sites, penalties, taxes, pollution prevention technologies,, waste management costs, and fines. ...

Solution Summary

This solution explains important issues of environmental accounting. The sources used are also included in the solution.