Full Costing Methods and Overhead Allocation

A costing method where all direct and indirect costs, both fixed and variable, are included in the cost of a product or service.

The allocation of indirect costs, such as overhead, to specific products or services.

A single overhead rate is used to allocate all indirect costs to all cost objects. This assumes that all cost objects have similar overhead requirements.

Multiple overhead rates are used to allocate indirect costs to specific cost objects. This method recognizes that different cost objects may have different overhead requirements.

It uses a single overhead rate calculated by dividing total indirect costs by the total allocation base.

It uses multiple overhead rates, each calculated by dividing the total indirect costs for a specific cost pool by the total allocation base for that pool.

Full costing can provide a more accurate cost per unit than direct costing.

Full costing is useful for decision-making, such as pricing, cost control, performance evaluation, and investment analysis.

The total resources consumed by a particular cost object. It encompasses both direct and indirect costs.

The principle that aims to assign as many costs as possible to the objects for which we want to calculate the cost.

A quantitative base used to allocate indirect costs to cost objects.

The value of indirect costs per unit of allocation base. It helps determine how to distribute indirect costs.

A location or activity where costs are grouped and assigned. An example is a department or process in a factory.

A method that uses a single allocation rate to assign all indirect costs to different cost objects. The allocation rate is calculated based on a single allocation base, creating a blanket overhead rate for the whole company.

A method that uses multiple allocation rates to assign indirect costs to cost objects, considering different cost centers or activities. This means that different indirect costs are assigned based on their specific allocation base.

Costs that can be directly traced to a specific cost object, like materials or direct labor.

Costs that cannot be directly traced to a specific cost object, like factory rent or utilities.

The process of assigning costs that can be directly traced to a cost object, for example, materials used in a product.

The calculation of the full cost of a cost object by adding direct costs and the allocated indirect costs.

The process of determining the profitability of a cost object by subtracting its full cost from its sales revenue.

The process of valuing inventories by considering both direct and indirect costs.

Setting prices for a product or service based on its full cost. This helps ensure that all costs are covered in the selling price.