Question

QUESTION TWO

1. Nectar company produces 3 products, X, Y and Z, details of which are shown below:

            X                    Y                    Z

Selling price per unit (ZMW)                     130                  120                 110                

Direct material cost per unit (ZMW)        85                    60                   70                  

Maximum demand (units)                        40,000          30,000         25,000   

Time required on the bottleneck               3                      5                     4                    

resource (hours per unit)

There are 320,000 bottleneck hours available each month.

Required

Calculate the optimum product mix each month.                                   (15 marks)

2. There are three reasons why implementing an environmental management accounting system makes sense- cost savings, improved environmental reporting and minimizing environmental risk.

Required

(a) Explain what “environmental management accounting” means.     (4 marks)

(b) Explain how “good” environmental behavior may help an organization to achieve each of the following:

(i) Cost savings;

(ii) Improved environmental reporting;

(iii) Minimizing environmental risk.                                                           (6 marks)

   (25 Marks)

Answer 1

A.	X	Y	Z
Selling price/unit	130	120	110
Less:Direct material cost/unit	85	60	70
Contribution/unit	45	60	40
Time reqd.(in hrs.) on the bottle neck resource/unit	3	5	4
So,contribution/bottleneck hr.	15	12	10
Ranking acc. To the above contribution/hr.	1	2	3
So,producing maximum of that product, which gives maximum contribution /bottleneck hr.& utilising the balance hrs. for the production of the other 2 products --again in the order of contribution/hr. --will maximise the contribution--- that will be the optimum product-mix.
Proceeding as detailed above,
Optimum product mix-each mth.	40000	30000	12500	50000/4 hrs.
Total Bottleneck hours(constraint)--- 320000 hrs.	120000	150000	50000	balance hrs.(320000-120000-150000)
	(40000*3)	(30000*5)

B.a.Environmental management accounting(EMA) includes most of the current systems of accounting and some extension , to that, ie. It aims to include many costs associated with the globally-increasing environment-conscious operation of the existing businesses-- ie.operating your business with social responsiblity , which is beneficial to the business, society & environment.So,Environmental management accounting c--accounts & evaluates all costs incurred & benefits reaped, to that end---which is inter-woven with the already existing business --- just like business houses took to social responsibility accounting.

b. That said, “good” environmental behavior will help an organization to achieve each of the following:

(i) Cost savings

Environment -conscious way of working --like shifting to eco-friendly packagings or re-usable packagings ,of the end products--saves not only costs , to both the seller and the buyer --but also improves customer -satisfaction

Environmental costs incurred by some big corporates, world over, towards emission treatment and pollution prevention , increases production efficiency , by safeguarding the labor-force from frequent ill-health--thus saving on time, money & most importantly, teh human capital ,from being wasted.That also saves the buyer from shelling out $ in non-productive output, at teh factory.

(ii) Improved environmental reporting

The implementation of EMA, will necessitate the maintenance of records for incurring such expenditures--which neeed to be documented.

Even though, they are being incurred even todate, they are not separately recorded , having become one with one or the other type of expense-head.

So, a conscious effort made to operate our business , in an environmentally sound manner, will certainly encourage the business , to report , their activities, in their published financial statements--which will serve as an impetus to their peers, in their industry & thus become a norm.

(iii) Minimizing environmental risk.

Having made their commitment to safeguard environmental cause public, the company cannot operate in a slip-shod manner , henceforth--- which is there for all to observe and comment.

So, the business, has to set certain work ethics , such as not to spoil nature ,say,

by de-foresting or recklessly discharging chemical effluents however they like or operating smoke-emitting equipments near residential areas or polluting with unacceptable levels of sounds

which it cannot hope to forget or discard , while planning its operations .

Thus, inadvertently,all the above environmental risks are minimised to the society at large.