Environmental Costing, Ecoefficiency, and Competitive Advantage

Waurika 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	7,500,000		17,250,000
Packaging materials (pounds)	4,470,000		2,280,000
Energy usage (kilowatt-hours)	1,500,000		750,000
Toxin releases (pounds into air)	3,750,000		750,000
Pollution control (machine hours)	600,000		150,000
Costs of activities:
Using packaging materials		$6,750,000
Using energy		1,800,000
Releasing toxins (fines)		900,000
Operating pollution control equipment		2,100,000

Suppose that Waurika's manager 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 $3,712,500 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 $1,507,500 (salaries of $900,000 for hiring six environmental engineers and $607,500 for treating the packaging materials so they can be reused). Engineering hours used for each process are 11,250 for the Org AB process and 3,750 for the Org XY process.

Required:

2. Calculate the net savings produced by the environmental changes for each product, in total, and on a per-unit basis. Round your answers for the Unit Savings to four decimal places.

	Total Savings	Unit Savings
Org AB	$fill in the blank 3	$fill in the blank 4
Org XY	$fill in the blank 5	$fill in the blank 6

Does this support the concept of ecoefficiency?

YesNoYes