(BQ) Part 2 book "Accounting and finance for non specialists" has contents: Budgeting, full costing, making capital investment decisions, managing working capita, financing the business. | 3/30/06 4:04 PM Page 249 Chapter 8 Full costing Introduction In this chapter we continue our consideration of management accounting by looking at an approach to deducing the cost of a unit of output that takes account of all of the costs. This contrasts with the approach that we looked at in Chapter 7, where we concentrated just on the variable costs. This full-costing approach, as it is called, is very widely used in practice. Many businesses base their selling prices on the full cost. Also, in deriving a business’s profit for a period, we need (as we saw in Chapter 3) to know the cost of the goods or service sold. We shall look at the traditional approach to full costing and at activity-based costing which represents an alternative approach. Finally, having considered how full costing is achieved, we shall consider its usefulness for management purposes. Learning outcomes When you have completed this chapter, you should be able to: n deduce the full cost of a unit of output in a single-product environment; n distinguish between direct and indirect costs and use this distinction to deduce the full cost of a job in a multi-product environment; n discuss the problem of charging overheads to jobs in a multi-product environment; n explain the role and nature of activity-based costing. 249 3/30/06 4:04 PM Page 250 Chapter 8 Full costing The nature of full costing ‘ ‘ With full costing we are concerned with all costs involved with achieving some objective, such as providing a particular service. The logic of full costing is that all of the costs of running a particular facility, say an office, are part of the cost of the output of that office. For example, the rent may be a cost that will not alter merely because we provide one more unit of the service, but if the office were not rented there would be nowhere for providing the service to take place, so rent is an important element of the cost of each unit of output. Full cost is .
