At the beginning of 2004 Greener Company initiated a programme to improve its environmental

performance. Efforts were made to reduce the production and emission of contaminating gaseous, solid
and liquid residues. By the end of the year, in an executive meeting, the environmental manager
indicated that the company had significant improvement in its environmental performance, reducing
the emission of contaminating residues of all types. The president of the company was pleased with the
reported success but wanted an assessment of the financial consequences of the environmental
improvements. To satisfy this request, the following financial data were collected for 2003 and 2004(all
changes in cost are a product of environmental improvements):

2003 2004

$ $

Sales 60,000,000 60,000,000

Evaluating and selecting suppliers 0 1,800,000

Treating and disposing of toxic materials 3,600,000 2,400,000

Inspecting processes (environmental objective) 600,000 900,000

Land restoration (annual fund contribution) 4,800,000 3,600,000

Maintaining pollution equipment 1,200,000 900,000

Testing for contaminants 450,000 300,000

Required:

(1) Classify the costs as prevention, detection, internal failure or external failure.
(2) Prepare an environmental cost report for the most recent year, where costs are expressed as a
percentage of sales