Full Costing

Full costing is a method of accounting that includes all costs associated with producing a product or service, including direct costs and indirect costs. Direct costs are those that can be directly attributed to the production of a product or service, such as the cost of materials and labor. Indirect costs are those that cannot be directly attributed to the production of a product or service, such as the cost of rent and utilities.

Full costing is used to determine the full cost of producing a product or service. This information can be used to make pricing decisions, as well as to compare the profitability of different products or services.

There are two main types of full costing: absorption costing and variable costing. Absorption costing includes all costs, both fixed and variable, in the cost of goods sold. Variable costing includes only variable costs in the cost of goods sold.

Absorption costing is the more traditional method of full costing. It is based on the assumption that all costs are incurred in order to produce a product or service. Variable costing is a newer method of full costing. It is based on the assumption that only variable costs are incurred in order to produce a product or service.

The choice of which full costing method to use depends on the specific needs of the company. Absorption costing is more accurate in determining the full cost of producing a product or service. However, it can also result in higher product costs, which can make it difficult to compete in a competitive market. Variable costing is less accurate in determining the full cost of producing a product or service. However, it can result in lower product costs, which can make it easier to compete in a competitive market.

Full costing is a valuable tool for businesses that want to make informed pricing decisions and compare the profitability of different products or services. However, it is important to choose the right full costing method for the specific needs of the company.