Verde Company reported operating costs of $50,000,000 as of December 31, 2013, with the following environmental costs:

Testing for contamination ..................... $ 700,000

Inspecting products .............................. 420,000

Treating toxic waste ............................ 2,100,000

Obtaining ISO 14001 certification ........... 1,050,000

Designing processes .............................. 420,000

Cleaning up oil spills ........................... 3,675,000

Maintaining pollution equipment ............ 1,250,000

Cleaning up contaminated soil ............... 5,775,000

Required:

1. Prepare an environmental cost report, classifying costs by quality category and expressing each as a percentage of total operating costs. What is the message of this report?

2. Prepare a pie chart that shows the relative distribution of environmental costs by category. What does this report tell you?

3. What if Verde deliberately did not include the cost of damaging the ecosystem because of solid waste disposal in its environmental cost report? Offer possible reasons for this decision. If consciously avoided, is this decision unethical?