Environmental Cost Assignment

Coyle Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs associated with the two products:

	Org AB		Org XY
Pounds produced	6,750,000		18,375,000
Packaging materials (pounds)	1,875,000		750,000
Energy usage (kilowatt-hours)	375,000		450,000
Toxin releases (pounds into air)	1,125,000		525,000
Pollution control (machine hours)	375,000		75,000
Costs of activities:
Using packaging materials		$3,750,000
Using energy		900,000
Releasing toxins (fines)		225,000
Operating pollution control equipment		900,000

Required:

1. Calculate the environmental cost per pound for each product. Round your calculations and answers to four decimal places.

	Unit Cost Per Pound
Org AB	$
Org XY	$

Which of the two products appears to cause the most degradation to the environment? ORG AB

or

ORG XY

2. In which environmental category would you classify excessive use of materials and energy? Detection Cost

External Failure Cost

Internal Failure Cost

or

Prevention Cost

3. Suppose that the toxin releases cause health problems for those who live near the chemical plant. The costs, due to missed work and medical treatments, are estimated at $1,950,000 per year. How would assignment of these costs change the unit cost? Round your calculations and answers to three decimal places.

		Unit Cost
Org AB INCREASE or DECREASE	by	$
Org XY INCREASE or DECREASE	by	$