ABSTRACT
This chapter discusses activity-based costing of investment appraisal of pollution prevention and focuses on activity-based costing. Indirect costs, potential liabilities and less tangible costs are often difficult or impossible to identify, measure and allocate, although these can very much influence the profitability of an investment. Management accountants have several responsibilities with respect to investment appraisal of pollution prevention. Internal environmental costs are often treated as overhead costs and divided equally between all cost drivers. The identification and measurement of environment-related costs is much more difficult with 'integrated technologies', which are more efficient production technologies that reduce pollution at the source, or before it occurs. For most businesses, economically rational management requires the direct allocation of environment-driven costs to the 'responsible' cost centres and cost drivers. Investment appraisal is one of the most important managerial activities. The basic idea is to compare different investment alternatives.
