SAB Ltd.’s finance division basically uses the variable costing system to account for brewery process waste costs. According to the financial planner, material costs are measured from the input stage throughout the brewery process until the stage where there is beer loss and packaging loss. Waste costs are separately identified from other costs; however, value is assigned at the end of a batch using the variable costing method. Other costs that relates to production loss are included in overhead accounts. The financial planner explained the brewery’s waste accounting system like this:
We do have a separate account for the variable costs. So you’ve got your variable costs which are accounted for differently and the variable
costs are the beer process flow. We’ve those accounts, and then the overhead accounts are also separate. So the variable waste costs are separated from overhead accounts (Financial Planner).
The accounting system in SAB Ltd captures waste costs by applying the standard costing system. The actual output costs are compared with the standard output target in order to calculate waste costs. The financial manager states that:
How that happens is we’ve got standards for each process. We know for example for beer loss, there is so much that needs to be accounted for because we’re going to lose no matter what (Financial Planner).
Material and energy costs are regarded as variable costs. It is a general perception in the brewery’s accounting division to measure waste costs based on the input- output analysis which is generated on a weekly basis. The financial planner explains in this statement:
Electricity cost is placed under variable costs. We set standards for everything, from electricity; materials; beer loss; coal; everything is included. The standards are set and then we’re usually measuring ourselves according to those two (standard costs and actual costs), vice- versa. It’s obvious that we’d have these overruns (wastages), and these overruns would be the difference between the standard versus the actual usage (Financial Planner).
In the production process, provisions are made for normal beer loss. He states:
For example, we already know we’re going to lose say 1% of malted barley in production. So, this is the standard (Financial Planner).
The financial planner believes that SAB Ltd has a perfect accounting system that captures all waste-related costs. According to him:
I don’t see anything that we’re missing currently. I can’t see anything that is left out (Financial Planner).
In accounting for waste costs, however, depreciation costs of wasted plant hours are not charged to waste account but to overhead accounts. The financial planner has this to say:
No, no, no. those would be overheads. It’s sitting in overheads (Financial Planner).
Costs of idle production time due to production stoppages, as a result of valve breakage for instance, are included in overhead accounts. However, on a weekly basis, the accounting division calculates factory efficiency to determine the volume of losses from the previous week’s production. This way, the number of hours lost to inefficient plant operations is known.
The financial planner believes that process waste information provided through the conventional accounting system does influence their waste-reduction decisions. He thinks that the provision of waste information is timeous since it is generated on a weekly basis. He puts it this way:
So already we have an earlier trigger (warning). Say, hello guys. Something wrong has happened last week. We can say, guys something is wrong with A, B, C go and look at this. See what the problem is there and fix it (Financial Planner).
The accounting system relies on the data provided by the production division for quantity and volume analysis to which cost is applied to generate the week’s waste cost. The cost analysis is presented to the production division to correct or fix the inefficiencies noticed from the previous week.
Basically, it seems that waste cost information provided by the MAS of SAB Ltd is measured through input-output analysis. Analysis is made of the volume of input through physical verification of the actual volume reportedly used by the production division and the actual physical count of material inventory by the accounting division at the end of producing a batch. The physical verification of inventory is done to ascertain the degree of variation in reported usage and actual usage by the production division on a weekly basis. Invariably, it appears that certain waste- related costs remain hidden in overhead accounts since most of the waste cost are computed using the variable costing approach.
The financial planner is of the opinion that the accounting system provides adequate waste information, however, he hopes that it can be improved upon such that it is more specific in providing waste information. In this regard, developing a waste-
reduction decision model into existing accounting systems is necessary to improve the role of accounting information on waste. The financial planner states that:
I think it’s adequate (that is, waste information provided by the brewery’s accounting system). Look, I believe it is. But, I think it can be improved in the fact that it can be more systematic. That would free us more time to be involved in strategic problem solving (Financial Planner).
SAB Ltd.’s accounting system provides waste cost information to line managers on a weekly basis so that they can act to correct the reported inefficiencies. There are also waste information request from the accounting division from ad-hoc committees to use when making waste-reduction decisions. As the Financial Planner puts it:
…..by giving this information to line managers so that they can act on them. There are also ad-hoc requests. It informs the line managers to make waste-reduction decisions (Financial Planner).
According to the brew master of SAB Ltd, a waste-related budget is provided to line managers during budget preparations. This is to ensure that line managers are responsible for the waste generated in their responsibility centres.
6.7.1.3 Summary of waste information provided by SAB Ltd.’s conventional