The full cost method assumes that all the costs incurred by a company must be incorporated into the final cost of the product. The costs are first classified according to their nature, in a second phase the already classified costs are distributed and assigned to cost centers that bring them together and are subsequently attributed to the products manufactured by the company. Usually it breaks down the cost into several parts:

Contenido

Existen diversos criterios de clasificación de los costes entre ellos la naturaleza de los mismos, la imputación a los factores productivos, etc.

Explicit and implicit costs

Since in economics, in addition to monetary transactions (which accounting is mainly responsible for), it also studies how individuals make their decisions, a distinction is made between implicit and explicit costs:

According to the imputation of the factors to the products

Depending on the allocation of the factors to the products that are manufactured, a distinction is made between direct costs and indirect costs.

Distribution of costs

It is considered that the costs are transferred to the different sections or departments of the company, such as, for example, purchasing department, production department, administration department, sales and financial department, etc. When it is not known exactly to which department to allocate a certain cost, it will be allocated by default to the administration department, which will subsequently transfer the entire cost amount to the rest of the departments in the so-called Secondary Distribution Table, following some type of reasonable criterion.

Once the primary distribution table is completed, in which no direct costs can be reflected, the different sections or departments of the company distribute their costs among themselves through some reasonable distribution criterion. This distribution of costs is done in the secondary distribution table. Only the production department and the sales department will be left with a cost at this stage, as a general rule, which will finally distribute their costs to the final finished or almost finished product based on the consumption made individually by each department.

Fixed and variable costs

According to the variation in costs depending on the level of activity of a company, a distinction is made between variable costs and fixed costs:

Examples of variable costs:.

All the aforementioned examples have in common that "there is something that makes them vary", in the case of fuel consumption it varies depending on the kilometers traveled, depreciation based on the hours used, commissions based on the sales made as well as the rent of the unit in the shopping center.

Examples of fixed costs:

In all the previous examples, the cost remains independent of whether there is or exists a level of activity, that is, if the company closes for vacations, it will still have to assume these costs.

The full cost method assumes that all the costs incurred by a company must be incorporated into the final cost of the product. The costs are first classified according to their nature, in a second phase the already classified costs are distributed and assigned to cost centers that bring them together and are subsequently attributed to the products manufactured by the company. Usually it breaks down the cost into several parts: