Refer to Problem 12-13. In 1999, Jack Carter, president of Kartel, requested that en- vironmental costs be assigned to the two major products produced by the company. He felt that knowledge of the environmental product costs would help guide the design decisions that would be necessary to improve environmental performance. The products represent two different models of a cellular phone (Model XA2 and Model KZ3). The models use different processes and materials. To assign the costs, the following data were gathered for 1999:

Activity Model XA2 Model KZ3 Disposing hazardous waste (tons) 20 180 Measuring contaminant releases (transactions) 1,000 4,000 Releasing air contaminants (tons) 25 225 Producing scrap (pounds of scrap) 25,000 25,000 Operating pollution equipment (hours) 120,000 400,000 Designing processes and products (hours) 1,500 500 Using energy (BTUs) 600,000 1,200,000 Training employees (hours) 50 50 Remediation (labor hours) 5,000 15,000 During 1999, Kartel’s division produced 200,000 units of Model XA2 and 300,000 units of Model KZ3.

Required:

1. Using the activity data, calculate the environmental cost per unit for each model. How will this information be useful? 2. Upon examining the cost data produced in Requirement 1, an environmental engineer made the following suggestions: (1) substitute a new plastic for a raw material that appeared to be the source of much of the hazardous waste (the new material actually cost less than the contaminating material it would replace); (2) redesign the processes to reduce the amount of air contaminants produced.

As a result of the first suggestion, by 2001, the amount of hazardous waste produced had diminished to 50 tons, 10 tons for Model XA2 and 40 tons for Model KZ3. The second suggestion reduced the contaminants released by 50 percent by 2001 (15 tons for Model XA2 and 110 tons for Model KZ3). The need for pollution equipment also diminished, and the hours required for Model XA2 and Model KZ3 were reduced to 60,000 and 200,000, respectively. Calculate the unit cost reductions for the two models associated with the actions and outcomes described (assume the same production as in 1999). Do you think the efforts to reduce the environmental cost per unit were economically justified?

Explain.