This paper reviews the issues associated with the different approaches to costing.
Written in 2002; 2,038 words; 7 sources; MLA; $ 64.95
Paper Summary:
Full costing treats all costs as product costs. Thus, all overhead costs are allocated to costs of production for specific products. Variable costing, in contrast, includes only the costs for those factors that change with the production of an additional unit of good or service. The paper traces the disagreement that exists as to the merits of each of these approaches to costing for purposes of control and decision-making within organizations.
From the Paper:
"The traditional product-costing model includes the following elements: (1) for product-costing purposes, the firm is separated into functional areas of activity-that is, manufacturing, marketing, financing, and administration; (2) the manufacturing costs of direct materials, direct labor, and manufacturing overhead are subject to inventory; (3) direct materiel and direct labor costs are considered to be traceable directly to the product; (4) manufacturing overheads of both production and manufacturing service departments are treated as indirect costs of the product, while being charged to the product by the use of predetermined overhead rates; (5) when a single, plant-wide, predetermined overhead rate is used, overhead is charged indiscriminately to all products without regard to possible differences in resources used in the manufacture of one product versus another; and (6) the functional costs of marketing, financing, and administration are accumulated in cost pools and are treated as costs of the period in which they are incurred."
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