Fullkostnadskalkylering

Fullkostnadskalkylering is a Swedish term that translates to full cost accounting or absorption costing in English. It is an accounting method where all production costs, both direct and indirect, are allocated to the cost of a product or service. This means that the cost of goods sold includes not only the direct materials and direct labor but also a portion of the factory overhead, such as rent, utilities, depreciation of machinery, and salaries of administrative staff involved in production.

The primary principle of full cost accounting is that all costs incurred by a business are necessary for the production of its goods or services, and therefore, must be absorbed by them. This contrasts with variable costing (also known as direct costing), which only assigns variable manufacturing costs to products and treats fixed manufacturing overhead as a period expense.

Full cost accounting is often used for external financial reporting and inventory valuation under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). It ensures that the value of inventory on the balance sheet reflects all manufacturing costs incurred. However, it can sometimes present challenges for internal decision-making, as it may distort the true cost behavior and make it difficult to assess the profitability of individual products or services, especially in the short term. The allocation of fixed overhead can also lead to complexities and potential arbitrariness in cost assignment.