Full Cost

Full cost is defined as the total cost of all resources used or consumed in production, including direct, indirect, and investing costs. A full cost accounting is a measurement tool used by the companies for collection, presentation and analyzing financial information. The full cost includes both the direct and indirect cost. The full cost includes the variable cost plus a share of the fixed cost. Full cost accounting takes into consideration both the internal and external information for business decisions.

Companies usually use full cost accounting for internal purposes primarily over external purposes. The full cost accounting method is associated to management accounting. The management accounting reports the information relating to business costs and allocates these costs to the produced goods and services. Both the accounts provide the information related to the company’s infrastructure. The environment is included in the full cost accounting analysis. The environment is considered in the full cost as business decisions are based upon the rules and regulations and taxes associated in the particular area where the company is located. Natural resource depletion and pollution are related concepts that can affect the companies.

Full cost accounting is a traditional part of accounting procedures which include the economic considerations. Various information like consumer demand, available credit, number of competitors, cost of resources, and international economic markets are common economic factors considered by the companies. These items have a direct impact how a company operates and the amount of profit it would earn in different regions.

Society is another aspect included in the full cost. The societal effects of decisions are considered intensely by the business managers and the owners of the company, because creating public distrust or violating the ethics deemed important by a group of citizens can lead to lower market share and lower the sales. Large organizations consider these affects and use full cost accounting to determine which opportunity is best for the company.

Questions

•  What is full cost?
• What are the aspects of full cost?