Term
Full Costing
What is full costing?
Answer
Definition
Allocating all costs (fixed, variable, direct, indirect) to a product.
Core definitions required for understanding cost management approaches.
What is full costing?
Allocating all costs (fixed, variable, direct, indirect) to a product.
What does full costing provide?
A complete picture of the total cost of producing a product or service.
When is full costing most useful?
For long-term pricing and profitability analysis.
What is a limitation of full costing?
Overhead allocation can be arbitrary, causing distorted product costs; less useful for short-term decisions.
What does contribution costing focus on?
Variable costs only and the contribution margin (sales revenue minus variable costs).
What is the contribution margin used for?
To cover fixed costs and generate profit.
When is contribution costing useful?
For short-term decision-making, such as special orders or product prioritization.
What are the limitations of contribution costing?
It does not allocate fixed costs and is not suitable for full profit measurement.
How is contribution different from profit?
Contribution is sales minus variable costs; profit is contribution minus fixed costs.
What key financial concepts does contribution costing help calculate?
Breakeven points and margin of safety.