What Is Full Costing?
Full costing, also known as absorption costing, is a management accounting tool used to allocate business costs to a company’s produced consumer goods or services. This cost allocation method allocates all manufacturing costs, including variable and fixed, to produced goods or services. The company’s manufacturing overhead is treated as a period cost in the full costing allocation method, meaning that overhead is charged in the accounting period in which it occurred, not when goods were made. Absorption costing is normally used when reporting inventory valuation to external stakeholders, such as investors or government agencies.
