Full Cost Accounting
What is full cost accounting? What are the advantages and disadvantages of full cost accounting? Full cost accounting is defined as being the practice of collecting and presenting all of the costs that are connected with the production of a product or a service. Some of these costs can be described as direct, indirect, and variable costs, though they may vary by business.
Full cost accounting has several advantages when used appropriately. It can lead to better and more informed decisions, being made by managers. Prices for products can more accurately reflect the full costs that are associated with producing them. There can be a better management of internal costs inside all departments that are connected with developing, producing, and selling. Full cost accounting gives a clearer idea of what the actual full cost of a product or service within company is.
There are also several disadvantages for full cost accounting as well. Full cost accounting can take away valuable time from necessary duties. There can be an increased need for more accountants to handle the larger work load. Another disadvantage is that managers are laden with debatable assumptions regarding important cost decisions. Although full cost accounting can lead to improved decision making; it can also lead to poor decision making.
Now that we have looked at some advantages and disadvantages of Full Cost Accounting, here is a company that has found a definite advantage for the environment through the use of full cost accounting. Carnegie Mellon, Engineering, is a Midwestern injection molding plant that switched to full cost accounting for its entire company. This plant was weighed down with elevated scrap rates, which caused an unattractive loss in profitability. Mainly due to the fact that they did not account for the total costs that were caused by high scrap rates. This plant only accounted for material costs and they did not attribute any extra...
Cited: Horney, Cheryl A., Chris T. Hendrickson, Lester B. Lave, and H. Scott Matthews. "Full Cost Accounting ." Carnegie Mellon Green Design Initiative. May 1995. Web. 6 Dec 2009. .
"ASME Cost Accounting." Web. 6 Dec 2009. .
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