prepare a bar graph for environmental costs expressed as a percentage of sales 649607
ENVIRONMENTAL RESPONSIBILITY ACCOUNTING, COST TRENDS
At the beginning of 2004, Limon Company, an international telecommunications company, embarked on an environmental improvement program. The company set a goal to have all its facilities ISO 14001 registered by 2007. (There are 30 facilities worldwide.) It also adopted the Balanced Scorecard with an environmental perspective added as a fifth perspective. To communicate the environmental progress made, management decided to issue, on a voluntary basis, an annual environmental progress report. Internally, the accounting department issued monthly progress reports and developed a number of measures that could be reported even more frequently to assess progress. Limon also asked an international CPA firm to prepare an auditor’s report that would comment on the reasonableness and fairness of Limon’s approach to assessing and measuring environmental performance.
At the end of 2007, the controller had gathered data that would be used in preparing the environmental progress report. A sample of the data collected is as follows:
Year |
Number of ISO 14001 Registrations |
Energy Consumption (BTUs) |
Greenhouse Gases |
2004 |
3 |
3,000 |
40,000 |
2005 |
9 |
2,950 |
39,000 |
2006 |
15 |
2,900 |
38,000 |
2007 |
24 |
2,850 |
36,000 |
As part of its environmental cost reporting system, Limon tracks its total environmental costs. Consider the following cost and sales data:
Year |
Total Environmental Costs |
Sales Revenue |
2004 |
$30,000,000 |
$250,000,000 |
2005 |
25,000,000 |
250,000,000 |
2006 |
22,000,000 |
275,000,000 |
2007 |
19,250,000 |
275,000,000 |
Required:
1. Prepare a bar graph for environmental costs expressed as a percentage of sales. Assuming that environmental performance has improved, explain why environmental costs have decreased.
2. Normalize energy consumption by expressing it as a percentage of sales. Now, prepare a bar graph for energy. Comment on the progress made in reducing energy consumption. How does this compare with the conclusion that would be reached using a nonnormalized measure of progress? Which is the best approach? Explain.