1. Ec. Ionut Bandrabur 26, Ecaterina Teodoroiu Street Panciu, Vrancea, 625401, Romania Phone: +40741623593 E-mail: ionut.bandrabur@gmail.com Environmental Cost Accounting requirements and solutions for Romanian enterprises May 2006

2. Objectives on ECA reduce recycle For implementing eco-efficiency concept in Romanian manufacturing business area it is necessary to reduce before to recycle:  reduction of operational costs  reduction of energy and water consumption  reduction of emissions, harmful substances and waste May 2006

3. Some definitions Sustainable development Sustainable development means: Other form of production (with a view of environmental effects); Other uses of raw materials and energy. Eco-efficiency  In the spirit of Eco-efficiency, top priority is to realize the product or to provide the service while reducing energy and materials needs.  Environmental Cost Accounting –  Environmental Cost Accounting – identification, appropriation and aplication of environmental costs. May 2006

4. Organisation benefits Identification of where materials and energy costs are greatest; Better informed decisions about how non-product outputs minimisation will save your organisation money; Identification of potential productivity gains; Demonstrating to investors, financial institutions, customers, employees and the community that your organisation is committed to forward planning and environmental responsability May 2006

5. Steps toward ECA State of the Art concerning Romanian situation Flow cost accounting in: Material flow accounting physical units – Material flow accounting Process costing systemActivity-based Costing monetary units – Process costing system and Activity-based Costing May 2006

6. Cost concepts for Production Direct materials Direct labour Prime cost= cost of direct materials + cost of direct labour Conversion cost= cost of direct labour + factory overhead Factory overhead Direct costs: all costs that can be directly related to a product Indirect costs: costs offered for a host of different products and services it is very hard to allocate these costs over the different products and services May 2006

7. Flow cost accounting – what and how? Flow-Cost Accounting is a material and energy flow-oriented cost accounting approach. The implementation of FCA is comprised of following steps: 1)Creation a Flow Model; 2)Collection of Material and Cost Data; 3)Allocation of Costs. May 2006

8. Flow model Material value and costs; System value and costs; Delivery and disposal value and costs. May 2006

9. Collection of Material and Cost Data Production order; Input material; Product material; Product area machine. May 2006

10. Allocation of costs Allocate shared costs using selected methods: Process costing system; Activity-Based Costing (ABC). May 2006

11. Process costing system Provides unit cost information Supplies cost data to support management decisions Furnishes ending values for inventory accounts Materials Inventory Work in Process Inventory Finished Goods Inventory May 2006

12. Activity-Based Costing (ABC) and Multiple Overhead Rates  ABC is a method of assigning overhead based on a number of different allocation bases (rather than just one). ABC groups overhead costs into Cost Pools.Cost Pools Model Elements Resources Activities Cost Objects Resource Drivers Activity Drivers May 2006

13. Why ABC/ECA Conventional systems are not complete Do not show the consequences of resource management decisions Do not show the cost of doing business how we do business Provide few insights about how to improve, or may even encourage actions that damage competitiveness Do not provide leaders/managers with the information they need to efficiently run their organization. May 2006

14. ABC basics - example B SETUP €60 / 30 setups = €2 per Setup Resources Activities Products Drivers 40 hours 60 hours Lots = 5 Lots = 35 Drivers SCHEDULING €40 / 40 Lots = €1 per Lot PERSONNEL 100 Hours €1 per Hour A €35 €40 €75 €25 €5 €20 Setups = 20 Setups = 10 Personnel Exp. €100 Lots Scheduled - 40 Setups Performed - 30 May 2006