Full costing and absorption costing
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SAC currently uses a basic standard cost system. Management knows very little about other concepts of costing and the benefits of having multiple costing methods. Your superior has asked that you and your team put together a presentation to management explaining various costing concepts as it relates to SAC (explain the usage and benefits of each).
Individual Portion:
As a SAC corporate business financial analyst, you must have an expert understanding of the various costing methods. Within your groups, divide the costing concepts among the individual team members to analyze and become an expert in at least one costing concept within your group.
Include the following:
- the definition of the concept
- how and when the concept could be used by SAC
- how the application of the concept differs from the other concepts
- its advantages and disadvantages
Costing Concept:
full costing/absorption costing
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Solution Summary
Your response is 333 words, including a list of advantages (3 of them) and disadvantages (3 of them) so you can build your response into a longer discussion if needed.
Solution Preview
Full absorption costing method includes the variable and fixed costs of production in the cost of inventory. That means that fixed costs are "spread" across all units made during the period and the fixed cost per unit are capitalized as part of the cost of inventory.
Full costing should be used for formal GAAP financial statements. GAAP requires that fixed costs be included in the inventory cost and so this method is used anytime GAAP financial statements are required or created. ...
Education
- BSc, University of Virginia
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