After reviewing the data on its two chemical products (given below), the CEO of Fara- day…

After reviewing the data on its two chemical products (given below), the CEO of Fara- day Chemical decides to launch an environmental performance improvement program.



First, efforts were made to reduce the amount of packaging. The demand for packag- ing materials was reduced by 10 percent. Second, a way was found to reuse the pack- aging materials. Usage of packaging materials changed from one time to two times. Both changes together saved $2,970,000 in packaging costs. Third, the manufactur- ing 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 $1,206,000 (salaries of $720,000 for hiring six environmental engineers and $486,000 for treating the packaging materials so they can be reused). Engineering hours used for each process are 18,000 for the herbicide process and 6,000 for the insecticide process.


1.    Calculate the new cost per pound for each product. Assume that the environ- mental reductions for each product are in the same proportions as the total reductions.

2.    Calculate the net savings produced by the environmental changes for each prod- uct, in total and on a per-unit basis. Does this support the concept of ecoeffi- ciency?

3.    Classify the activities as prevention, detection, internal failure, or external failure. What does this tell you about the relationship between the various categories?

4.    Describe how the environmental improvements can contribute to improving the firm’s competitive position.


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