In 2008, Pedersen Company produced a Sustainability Report. As part of this report, an environmental financial statement was produced. In the Environmental Benefits section of the Pedersen report, three types of benefits are listed: savings, income, and cost avoidance. Consider the following data for selected items over a four-year period:
| Year |
Engineering Design Costs |
Cost of Ozone-Depleting Substances |
|
2005
|
$160,000
|
$2,880,000
|
|
2006
|
1,280,000
|
1,920,000
|
|
2007
|
640,000
|
1,280,000
|
|
2008
|
80,000
|
320,000
|
The engineering design costs were incurred to redesign the production processes and products. Redesign of the product allowed the substitution of a raw material that produced less ozone-depleting substances. Modifications in the design of the processes accomplished the same objective. Because of the improvements, the company was able to reduce the demand for pollution control equipment (with its attendant depreciation and operating costs) and avoid fines and litigation costs. All of the savings generated in a given year represent costs avoided for future years. The engineering costs are investments in design projects. Once the results of the project are realized, design costs can be reduced to lower levels. However, since some ongo- ing design activity is required for maintaining the system and improving it as needed, the environmental engineering cost will not be reduced lower than the $80,000 reported in 2008.
Required
1. Prepare a partial environmental financial statement, divided into benefit and cost sections for 2005, 2007, and 2008.
2. Evaluate and explain the outcomes. Does this result support or challenge ecoefficiency? Explain.