Does the life-cycle cost approach have limitations

Assignment Help Managerial Accounting

Reference no: EM13950249

Lavaron Chemical Products Division produces surfactants, ingredients used in pro- ducing laundry detergents (surfactants are the components that help release soil from clothing). There are different types of surfactants possible, depending on the nature of the raw material input. One possibility, for example, is the usage of beef tallow as the primary raw material input. Another possibility is to use petrochemical stock as the primary raw material input. The primary input plus other inputs and energy sources are used to produce the surfactants. An inventory analysis produces the following data for the production of surfactants:

	Petrochemical	Tallow
Raw materials (kilograms per 1,000 kg of surfactant)	990	935
Water usage (kilograms per 1,000 kg of surfactants used)	56	560
Energy usage (kilowatt-hours per 1,000 kg of surfactants):
For production of raw materials	60	30
Transportation	10	30
Processing (production of surfactants)	65	60
Residues (emissions per 1,000 kg of surfactants):
Particulates (air contaminant)	5	12
Hydrocarbons (air contaminant)	40	33
Dissolved solids (liquid contaminant)	7	5
Land contamination (solid residue)	87	176

The greater water usage for tallow relates to the requirement that water must be used to produce feed for beef. The cost per kilogram of petrochemical stock is $0.40. The cost per kilogram of tallow is $0.60. Water costs $0.50 per kilogram, and energy is $1.20 per kilowatt hour. When air contaminants exceed 5 per 1,000 kilograms, pollution control equipment must be purchased and installed. The cost of acquiring and operating this equipment is $500 per five units of contaminants. Liquid contaminants are more trouble. If dumped into local streams over the life cycle, the costs are estimated to be $120 per unit of liquid contaminant. If a water treatment system is used, the cost is $60 per unit of contaminant. Finally, soil cleanup is esti- mated at $20 per unit of solid residue.

Required

1. Assess the relative environmental impacts of the two approaches to producing surfactants using only operational environmental measures. Which of the two approaches would you recommend? Justify your choice.

2. Use the cost information and calculate an environmental impact cost per 1,000 kg of surfactants. Which of the two approaches would you now recommend? Does the life-cycle cost approach have limitations? Explain.

3. Which parts of the life cycle described by the inventory analysis are controlled by the supplier? By the producer? What part of the inventory analysis is missing?

Reference no: EM13950249

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