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Unit 4: Technological Environment

was one of several chlorofluorocarbons with wide commercial use. In the mid-1980s, notes
convincing scientific evidence indicated that increased levels of CFCs in the atmosphere
were decreasing stratospheric ozone concentrations. The ozone layer of the atmosphere
absorbs ultraviolet.
Declining stratospheric ozone concentrations allow more ultraviolet light through, which
could lead to costly social effects worldwide.
Increased CFC levels in the atmosphere were attributed to Freon leakage and evaporation
from individually owned appliances and commercial equipment. Consequently, a phase
out of manufacture and use was called for by the 1987 Montreal Protocol on Substances that
Deplete the Ozone Layer. The Protocol, and subsequent Amendments, set ambitious goals
to reduce CFC production, but allowed individual governments the freedom to determine
how they would meet those targets.
In 1990, the United States began taxing CFC manufacture (and providing tax incentives for
recycling) under the federal Fluorocarbon Tax (IRC §4681). For Freon, the tax was initially
set at $1.37/pound (which is almost equal to the pretax wholesale price of the product).
The tax was paid by the Freon manufacturer, then the cost was passed on to Distributor
Inc., which in turn passed the cost on to its customers. The legislation also stipulated that
the tax would increase incrementally each year.
reaction to the tax

As was common for many businesses, Distributor.s accounting system did not have
the ability to separate a wholesale unit cost into different components (e.g., product,
cost, exclusive of product tax). Typically, when Distributor received a shipment from a
producer, it recorded the shipment identification number, substance identity, unit cost,
and total number of units. Then, different accounting systems added various information
to the wholesale cost as each value-added step was completed (e.g., repacking, invoicing
for transport). Output from each of these systems was used to generate financial accounting
reports, managerial accounting reports, and tax return data.
Distributor’s customers who used Freon were unhappy with the increase in price. Some
customers were (unfairly) suspicious that Distributor had used the tax increase as an
opportunity to quietly increase its profit margins for Freon. These customers demanded a
breakdown of non-tax product cost and product tax on Distributor invoices.
Distributor’s executives were concerned that its business would be affected by the
Fluorocarbon Tax, even though the company did not explicitly have to pay the tax.
case Questions and assignment

Be prepared to discuss: (a) from a policy perspective, what economic effect was probably
expected from implementing this pass-through tax, (b) what is the likely impact of the
Fluorocarbon Tax on Distributor’s customer relationships, (c) how is the Fluorocarbon
Tax likely to impact Distributor’s cost accounting results, (d) what other impacts may the
tax have on Distributor, and (e) is this tax unique, or are there other taxes or regulatory
instruments that pose analogous problems for business.

Source: www.BELLinnovation.org.
4.4 summary

This unit attempts to give an overview of the functions in as simple manner as possible.
l z Technology has played a major role in the life of people, right from snail mail to
e-mail the way we live has dramatically changed from the past decade.

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