- Applying Activity Based Costing Method to Determine Environmental Costs in Brick Manufacturing Enterprises. - Activity Based Costing method (ABC) is a useful tool for integrating environmental costs into strategic objectives of enterprises and linking goals with environmental management, thereby ABC method helps organizations improve environmental and financial performance. - In Vietnam, however, ABC method is not really popular in the brick industry which causes negative impacts on the environment. - Therefore, this paper focused on researching ABC method in brick manufacturing enterprises. - Activity Based Costing method (ABC) is a useful tool for integrating environmental costs into strategic objectives of enterprises and links goals with environmental management, thereby ABC method helps organizations improve environmental and financial performance. - In Vietnam, however, ABC method is not really popular in the brick industry which causes negative impacts on the environment.. - The study presents an framwork of ABC method and integrate ABC method in current management accounting system. - The focus on ABC method can help company consider environmental costs fully and accurately. - Moreovers, a case study is conducted to illustrate the comparison between the traditional cost accounting system and the ABC system for allocating environmental costs. - Therefore, the paper apply ABC method to determine environmental costs in Lam Son company in the hope of help company to address the challenge of sustainable development more effectively.. - Environmental costs have been underestimated for the past two decades and most of them are not regularly monitored and not accurately allocated to the product or process by traditional accounting methods. - Rogers and Kristof (2003) argued that ABC method can be applied in environmental accounting and helps enterprises allocate environmental costs better. - Using ABC method in measuring environmental costs will create a great advantage - integrate environmental costs into the enterprise's strategic objectives and align the goals with management (Schaltegger &. - The ABC method combines with the management accounting system to create a sustainable accounting system. - The ABC method tracks environmental costs to each product based on the activity therefore it generates more useful cost information and environmental costs hidden in overhead account will be identified. - (2010) recommended that by linking environmental costs to the ABC system, the organization will have a good basis to determine which products need to be cut down and which materials need to be changed or which production process need to be adjusted.. - This will help managers understand the information related to environmental performance and determine the percentage of environmental costs in total costs of product.. - When the above steps are completed, environmental costs can then be allocated to the product and the manufacturing process.. - The ABC method is a useful technical tool to estimate prodution costs. - Therefore, ABC method should be applied in certain conditions such as: Producing many kinds of products with the large number. - environmental costs accounting for a significant proportion of total operating costs.. - Traditional costing method và ABC method. - ABC method. - Two research objectives have been developed: understanding ABC method that measure environmental costs. - Develop the ABC method in brick production enterprises to improve information for decision-making. - The research find that environmental costs in the factory are are hidden in overhead accounts. - Since environmental costs are associated with non-environmental costs, this will mask environmental costs. - As a result, managers are not aware of environmental costs and the scope of environmental costs, and the opportunity to reduce environmental costs becomes difficult. - Because environmental costs are contained in general accounts, this will limit changes to collect and allocate environmental costs to products. - In addition, environmental costs are allocated to cost objections (products, production processes) through the use of a common allocation criterion (eg the number of products ouput). - As a result, environmental costs have been separated from the products and activities that created them. - ABC method help to overcome the limitations of the traditional accounting approach which the factory is selecting. - Current accounting system in the factory do not trace and track direct origin of environmental costs. - Instead of this, environmental costs are collected and allocated to products or processes with simple allocation base. - If environmental costs are small, this allocation does not seem significant. - However, when environmental costs become important and departments in business contribute differently about resource, traditional allocation might send wrong signs to managers and affect to their decisions. - Designing a suitable method which define and measure environmental costs is an important problem to help enterprise define environmental costs accurately and fully. - Therefore, the study apply ABC method in the factory to collect, measure and allocate environmental costs. - For example, pollution disposal activity centre consists of activity for waste water disposal, Activity for emissions and dust disposal, Activity for solid waste disposal.. - Selecting suitable environmental actitities by ABC method will allow the factory trace and track indirect environmental costs to cost objections accurately. - Stage 2: Classify environmental costs. - ABC method is used to allocate environmental costs based on activities. - Therefore, it is necessary to classify indirect environmental costs. - Activity for disposal of emissions, dust Volume of emissions, dust (kg) Activity for disposal of waste water Volume of waste water (m3) Activity for disposal of solid waste Volume of solid waste (tons) 2. - Activity for using water effectively Water input volume (m3) Activity for using energy effectively Total energy input volume (J) Activity for recycling industrial waste Volume of solid waste (tons) Activity for recycling harzardous waste Volume of harzardous waste (tons). - Green material purchasing procurement and methods Number of purchasing material (no.) Additional activity for supplying. - environmentally conscious products Volume of toxics (tons) Additional activity for reducing the environmental. - Volume of containers and packaging used (tons) Activity for the collection, recycling, resale. - Activity for the implementation and maintenance. - Activity centre Environmental activity Activity driver activity centre Activity for disclosure of environmental. - Activity for monitoring environmental impact Number of internal control (no.) Activity for environmental training of employees Time of training sessions (hr) Activity for environmental improvement such. - Activity for environmental improvement, including nature conservation, tree planting, beautification and landscape preservation. - Stage 4: Allocate environmental costs to activities. - Based on contribution of each activity to manufacturing procces, environmental costs are allocated to actitivies (Unit cost per activity driver). - Allocate environmental costs to activities. - (VND) Activity for disposal of. - Activity for disposal of waste water. - Activity for disposal of solid waste. - Activity for using water. - Activity for using energy effectively. - Activity for recycling industrial waste. - Activity for recycling harzardous waste. - Additional activity for supplying environmentally. - Additional activity for reducing the environmental impact of containers and packaging. - Activity for the collection, recycling, resale and proper disposal of used. - Activity for the implementation and. - Activity for disclosure of environmental information. - Activity for monitoring environmental impact. - Activity for environmental training of employees. - Activity for environmental improvement such as. - Activity for environmental improvement, including nature conservation, tree planting, beautification. - Define environmental costs for each product. - Total cost (VND) Activity for disposal of. - emissions, dust Activity for disposal of. - waste water Activity for disposal of. - Activity for using energy. - Activity for recycling. - industrial waste Activity for recycling. - Additional activity for supplying environmentally conscious products. - Activity for the collection, recycling, resale and proper disposal. - Activity for disclosure of environmental information associated with business activities and environmental. - Activity for monitoring. - Total cost (VND) Activity for. - Activity for environmental improvement such as nature conservation, tree. - Activity for environmental improvement, including nature conservation, tree planting, beautification and. - ABC Method and trational costing method Production ABC method. - Table 4 showed that in traditional costing method, buiding brick and face brick get same environmental costs. - This might be an incorrect way to allocate some typical environmental costs. - In ABC method, environmental costs in building brick are more than in face brick becauses activity driver of building brick create less. - Therefore, environmental costs of products in ABC method are more precise and managers in enterprises define activities which make environmental impacts more fully and correctly. - Applying ABC method require staff who have high qualify and much experience.. - Besides, it is required to the close connection between management accounting department and environmental management department in collecting, measuring and allocating environmental costs. - However, it is pointed out that the lack of active participation of accountants in the management of environmental activities led environmental costs not to collect and provide sufficiently and detailed. - This can be explained by the limited knowledge and skills of ABC method.. - Therefore, to practice ABC method, it is required that management accounting department have a thorough understanding of the ABC method otherwise the collection of information may be impeded. - Raising awareness and understanding of the management accounting department on environmental management is a very important mechanism for developing ABC method in brick production enterprises. - Therefore, a standard definition of environmental costs as well as the ABC method framework should be clear understood from management accountants.. - Therefore, a team of professionals should be established that includes environmental managers and management accountants, cost controllers to get a complete picture of environmental performance and related environmental costs. - And it is clear that a closely linked relationship between management accounting and environmental management department is essential to track, calculate and allocate environmental costs accurately and completely.. - Peres, C (2011), ‘Capturing Environmental Costs by using Activity Based Costing methob’, Economic Science Series, 719-725
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