At the end of 2010, Hender Chemicals began to implement an environmental quality management program. As a first step, it identified the following costs in its accounting records as environmentally related for the year just ended:

2010

Settling personal injury claims ....... $1,200,000

Treating and disposing of toxic waste .... 4,800,000

Cleanup of chemically contaminated soil .... 1,800,000

Inspecting products and processes ...... 600,000

Operating pollution control equipment ...... 840,000

Licensing facilities for producing contaminants . 360,000

Evaluating and selecting suppliers ....... 120,000

Developing performance measures ........ 60,000

Recycling products .............. 75,000

Required:

1. Prepare an environmental cost report by category. Assume that total operating costs are $60,000,000.

2. Create a pie chart to illustrate the relative distribution percentages for each environmental cost category. Comment on what this distribution communicates to a manager.