Refer to the data in Exercise 12-4. Suppose that the CEO of Billing decides to launch an environmental performance improvement program. First, efforts were made to reduce the amount of packaging. The demand for packaging materials was reduced by 10 percent.-Second, a way was found to reuse the packaging materials. Usage of packaging materials changed from one time to two times. Both changes together saved $495,000 in packaging costs. Third, the manufacturing processes were redesigned to produce a reduced environmental load. The new processes were able to reduce emissions by 50 percent and private emission costs by 75 percent. The new processes also reduced the demand for energy by one-third. Energy costs were also reduced by the same amount. There was no change in the demand or cost of operating pollution control equipment.

The cost of implementing the changes was $201,000 (salaries of $120,000 for hiring two environmental engineers and $81,000 for treating the packaging materials so they can be reused). Engineering hours used for each process are 3,000 for the intermediate process and 1,000 for the adhesive process.

Required:

1. Calculate the new cost per pound for each product. Assume that the environmental reductions for each product are in the same proportions as the total reductions.

2. Calculate the net savings produced by the environmental changes for each product, in total and ona per-unit basis. Does this support the concept of ecoefficiency?

3. Classify the activities as prevention, detection, internal failure, or external failure.

What does this tell you about the relationship between the various categories?

4. Describe how the environmental improvements can contribute to improving the firm’s competitive position. lop2