Cost Systems

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Costing Systems

Costing systems are part of the overall accounting system used by companies to measure sustainability performance and identify and account for expenditures accurately (Tatum, 2011). Three cost methods used as part of the decision-making process are Activity-based costing (ABC), Life-cycle costing (LCC), and Full cost accounting (FCA). The benefits and limitations of each in relation to sustainability efforts are examined.

Analysis

Comparison

Traditional cost accounting methods were based on labor intensive industries consisting of no automation and minor product specialization or diversification (Emblemsvag, 2010). Cost was driven by product development and services (Epstein, 2008). However, activity-based costing (ABC) refutes this assumption.

ABC allocates cost relative to the activities performed by a company such as employee training and direct labor first and the products, services, and customers impacted by these activities second resulting in a cause and effect relationship (Epstein, 2008). Consequently, the central benefit of an ABC analysis is the direction of measurement used to effectively allocate social and environmental costs, increase productivity, and appropriately distribute or reduce overhead costs (Epstein, 2008).

Life-cycle costing (LCC) is a second account strategy derived from the Life Cycle Assessment (LCA) system used to measure environmental impacts linked to a product, process, or service (Epstein, 2008). Hence, LCC focuses on external and internal cost of activities linked to product development, distribution, and maintenance over time (Dorf & Kusiak, 1994).

Moreover, when LCC is applied to social and environmental costs “it consists of monetizing social and envi...

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...ttp://www.ce.cmu.edu/GreenDesign/gd/education/FCA_Module_98.pdf

International Institute for Sustainable Development (2011). Full-cost accounting for the environmental impacts of agriculture. Retrieved from http://www.iisd.org/measure/knowledge/sectors/fullcost.asp

Amaladas, A. (2011). Activity-based costing. Retrieved from http://www.slideshare.net/divinvarghese/activity-based-costing-presentation

Encyclopedia of Management (2011). Activity-based costing. Retrieved from http://www.enotes.com/management-encyclopedia/activity-based-costing

Bailey, P.E. (1991). Life-cycle costing and pollution prevention. Retrieved from http://www.p2pays.org/ref/27/26821.pdf

Georgia Institute of Technology (2003). Expressing environmental impact in monetary units. Environmental accounting approaches. Retrieved from http://www.srl.gatech.edu/education/ME4171/LCC.ppt

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