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Ebook Accounting an introduction (4/E): Part 2

Part 1 book “Accounting an introduction” has contents: Full costing, costing and pricing in a competitive environment, budgeting, accounting for control, making capital investment decisions, financing the business, managing working capital. | ACCA_C10.qxd 7/08/2007 11:27 CHAPTER Page 332 10 Full costing Introduction n this chapter we shall examine an approach to deducing the cost of some productive activity, such as producing a unit of product (for example, a tin of baked beans), providing a unit of service (for example, a car repair) or creating a facility (for example, building a national football stadium). Full (or absorption) costing is a widely used approach that takes account of all of the costs of producing a particular unit of output. The precise approach taken tends to depend on whether each unit of output is identical to the next or whether each job has its own individual characteristics. It also tends to depend on whether the business accounts for overheads on a departmental basis. We shall look at how full (absorption) costing is carried out and consider its usefulness for management purposes. In this chapter we consider the traditional, but still very widely used, form of full costing. In Chapter 11 we shall consider activity-based costing, which is a more recently developed approach. I Learning outcomes When you have completed this chapter, you should be able to: ● Deduce the full (absorption) cost of a unit of output in a single-product environment. ● Deduce the full (absorption) cost of a unit of output in a multi-product environment. ● Discuss the problems of deducing full (absorption) costs in practice. ● Discuss the usefulness of full (absorption) cost information to managers. Remember to create your own personalised Study Plan ACCA_C10.qxd 7/08/2007 11:27 Page 333 WHY DO MANAGERS WANT TO KNOW THE FULL COST? Why do managers want to know the full cost? As we saw in Chapter 1, the only point in providing any item of accounting information is to provide one or more of the user groups with information that will help them make more informed decisions. There are broadly four areas where managers use knowledge of the full cost of their output. These .