Requirement 1The primary objective of the case of MLC was to demonstrate that introduction of environmental management accounting in a firm achieves good financial and environmental outcomes. In order to achieve this objective the case study was divided into three phases with each having its own objectives as identified and explained below. Phase 1: The objectives of the case study under phase one were to review operations of MLC in order to identify the environmental factors related to the operations and identify management accounting systems used by MLC and the treatment of environmental impacts within the system, which includes accounting, capital expenditure, budgeting and reporting systems.
This phase identified water usage, waste management, energy usage and paper usage as the main environmental impacts related to the MLC’s operations. Phase 2: The objectives of the case study under phase two is to identify costs and opportunities related to environmental impacts that were not identified and recorded within the system. This phase determined to provide MLC’s management and stakeholders with reliable information by determining the necessary changes in the system in order to make the impacts and related costs to be easily identified. Phase 3: The objective of the case study under phase three was to record the results discrepancies as consequences of systems changes incorporated in phase two.
The results indicate that environmental management accounting is critical to good management and that management can obtain meaningful information for making decisions if management accounting systems account for environmental impacts. Requirement 2The Blackbaud school accounting and reporting system that is in operation at MLC has functions for students’ registrations, records and accounting for not for profit making organizations.
The system has limited outputs for management accounting reports and the main outputs include balance sheet, statement of income and in addition it has trial balance, charts of accounts and the general ledger. In order to produce statement of income and expenditure and cash flow forecast, MLC uses spreadsheets. MLC’s capital expenditure entails capital replacements and capital works. The decision to replace capital equipment is triggered by requests made by the teachers. Each department is required to have a priority for the needed replacement upon which the budget is made based on overall preference list.
MLC prioritizes items of capital works and then subject them to public tendering in order to arrive at a proximate cost for the items. These are the costs that are incorporated into the budget. Requirement 3The environmental impacts related to MLC’s operations include water usage, waste management, energy usage and paper usage. Costs related to paper water and energy are distributed to general administration overheads while the costs of environmental impacts associated with waste management are distributed to cleaning and caretaking overheads. Beyond this there is no more classification accorded to account for these costs.
When costs associated with environmental impacts are incurred, they are directed to expenses account where they are arbitrarily allocated to tuition and boarding but not to responsibility centres. These expenses are then disclosed in the income and expenditure report as overheads. For the purposes of cost treatment MLC has two departments upon which costs of environmental impacts are allocated and apportioned and these are tuition and boarding. These are the cost centres in which the costs are allotted which are classified into administration and general overheads and cleaning and caretaking.
Administration and general overheads include photocopying, light and power and water rates. Caretaking and cleaning includes waste management. The total of expenses in tuition and boarding represents the total expenses incurred and this is what is reported in the income and expenditure reports. The allocation approach adopted ignores the costs of service between general administration and caretaking and cleaning departments and allocates all costs to tuition and boarding in the ratio of the remaining percentages. After all allocations have been made all the costs are contained in the two operating departments.
This is a major effect in that overhead rates can be affected if the resulting errors in allocation are significant.