Full costing and variable costing are two different costing methods, and there are certain differences in their calculation formulas and results.
Full costingIt refers to the fact that all the costs of direct materials, direct labor, variable manufacturing expenses and fixed manufacturing expenses consumed in the production process in a certain period of time are included in the product cost and inventory cost.
The formula for calculating the full costing method is as follows:
Product Cost = Direct Material Cost + Direct Labor Cost + Variable Manufacturing Expense + Fixed Manufacturing Expense.
Variable costingIt refers to the direct materials, direct labor and variable manufacturing expenses consumed in the production process in a certain period of time into the product cost and inventory cost, and the fixed manufacturing expenses are treated as period expenses.
The formula for calculating the variable cost method is as follows:
Product Cost = Direct Material Cost + Direct Labor Cost + Variable Manufacturing Expense.
Where both methods are applicable
Full costing
The unit cost of the product is higher, and the variable cost is lower as a proportion of the total cost.
The production cycle of the product is long, and the fixed cost accounts for a relatively high proportion of the product cost.
Businesses need to accurately account for costs to meet the need for external reporting.
Variable costing
The unit cost of the product is low, and the variable cost accounts for a higher proportion of the total cost.
The production cycle of the product is short, and the fixed cost of the product is relatively low.
Businesses need to analyze and control costs to improve their profitability.
Conclusion
The full costing method and the variable costing method have their own advantages and disadvantages, and enterprises should choose according to their actual situation when choosing a costing method.
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