Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 22

Cost of Environmental Quality Report You are given the following environmental quality-related costs:

Employee training	$100,000
Product design	140,000
Supplier certification	40,000
Process inspection	320,000
Depreciation—pollution-control equipment	400,000
Maintaining pollution-control equipment	200,000
Cleaning up polluted lake	500,000
Restoring land after use	700,000
Property damage claim	600,000

Required

1. Prepare a cost of environmental quality report for the year. Determine subtotals for each of the four reporting categories and express each subtotal as a percentage of total operating expenses ($10,000,000) for the year.

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2. Based on the report you prepare, what conclusions can you draw regarding the company’s environmental quality performance for the year?

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3. Can you offer management suggestions for the design of an effective cost of environmental quality reporting system? (That is, what would make for a good reporting system?)

Step 1 of 9

Quality costs

There are four types of quality costs incurred which are prevention costs, appraisal costs, external failure costs and internal failure costs. These costs are incurred to improve quality and avoid defect of product.