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Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
Edition 1ISBN: 978-0538736787 Exercise 47
REPORTING SOCIAL COSTS
Refer to Exercise 14-21. Suppose that the newly hired environmental manager examines the report and makes the following comment: ''This report understates the total environmental costs. It fails to consider the costs we are imposing on the local community. For example, we have polluted the river and lake so much that swimming and fishing are no longer possible. I have heard rumblings from the local citizens, and I'll bet that we will be facing a big cleanup bill in a few years.'' Subsequent to the comment, environmental engineering estimated that cleanup costs for the river and lake will cost $3,000,000, assuming the cleanup efforts are required within five years. To pay for the cleanup, annual contributions of $525,000 will be invested with the expectation that the fund will grow to $3,000,000 by the end of the fifth year. Assume also that the loss of recreational opportunities is costing the local community $1,200,000 per year.
Required:
1. How would this information alter the report in Exercise 14-21?
2. Current financial reporting standards require that contingent liabilities be disclosed if certain conditions are met. Thus, it is possible that Hender may need to disclose the $3,000,000 cleanup liability. Yet, the opportunity cost for the recreational opportunities need not be disclosed to outside parties. Should Hender voluntarily disclose this cost? Is it likely that it would?
Refer to Exercise 14-21. Suppose that the newly hired environmental manager examines the report and makes the following comment: ''This report understates the total environmental costs. It fails to consider the costs we are imposing on the local community. For example, we have polluted the river and lake so much that swimming and fishing are no longer possible. I have heard rumblings from the local citizens, and I'll bet that we will be facing a big cleanup bill in a few years.'' Subsequent to the comment, environmental engineering estimated that cleanup costs for the river and lake will cost $3,000,000, assuming the cleanup efforts are required within five years. To pay for the cleanup, annual contributions of $525,000 will be invested with the expectation that the fund will grow to $3,000,000 by the end of the fifth year. Assume also that the loss of recreational opportunities is costing the local community $1,200,000 per year.
Required:
1. How would this information alter the report in Exercise 14-21?
2. Current financial reporting standards require that contingent liabilities be disclosed if certain conditions are met. Thus, it is possible that Hender may need to disclose the $3,000,000 cleanup liability. Yet, the opportunity cost for the recreational opportunities need not be disclosed to outside parties. Should Hender voluntarily disclose this cost? Is it likely that it would?
Explanation
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Cornerstones of Cost Accounting 1st Edition by Don Hansen,Maryanne Mowen
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