when using the full costing method all direct fixed and variable overhead costs are assigned to the end product 
in full costing accounting these various expenses move with the product or service through inventory accounts until the product is sold the income statement will then recognize these as expenses under costs of goods sold cogs full costing vs variable costingthe alternative to the full costing method is known as variable or direct costing the treatment of fixed manufacturing overhead costs such as salaries and building leases is the primary difference between these two different accounting styles companies that use variable costing separate these operating expenses from production costs in short they seek to establish the expenses incurred during the manufacturing process independent of the everyday costs of running a business under the variable costing method fixed manufacturing overhead costs are expensed during the period they are incurred in contrast the full costing approach recognizes fixed manufacturing overhead costs as an expense when goods or services are sold choosing one method over another can have sizable effects on the reporting of financial statements in practice neither costing method is right or wrong some organizations will find variable costing more effective while others will prefer full costing the usefulness of method selection boils down to managerial attitude behavior and organizational design as it relates to accurate input cost capture and valuation as more businesses move to just in time jit or related streamlined production procedures and inventory systems in many ways direct or full costing methods lose their significance because fewer costs and expenses are tied up in production processes advantages of full costingcompliant with reporting rules one of the biggest benefits of full costing is that it complies with gaap even if a company decides to use variable costing in house it is required by law to use full costing in any external financial statements it publishes full costing is also the method that a company is required to use for calculating and filing its taxes accounts for all production costs factoring in all expenses provides investors and management with a complete picture of how much it costs a company to manufacture its products establishing the total cost per unit helps businesses to determine suitable pricing for goods and services easier to track profits full costing presents a more accurate idea of profitability than variable costing if all of the products are not sold during the same accounting period when they are manufactured this can be especially important for a company that ramps up production well in advance of an anticipated seasonal increase in sales disadvantages of full costingdifficult to compare product lines full costing also has several drawbacks for example taking into account all expenses including those not directly associated with production may make it slightly harder for management to compare the profitability of different product lines impacts efforts to improve operational efficiency management teams using full costing will also find it more challenging to run cost volume profit cvp analysis which is used to determine how many products a company must manufacture and sell to reach the point of profitability and improve operational efficiency if fixed costs are an especially large part of total production costs it is difficult to determine variations in costs that occur at different production levels can skew profit another major flaw of full costing is that it can potentially mislead investors fixed costs are not deducted from revenues unless all of the company s manufactured products are sold meaning that a company s profit level can appear better than it actually is during a specified accounting period 