What is Full Cost?

Full cost is the aggregation of all costs associated with a product or other cost object. These costs include both the direct costs and indirect costs of production, but do not include selling, general and administrative expenses. The cost assigned to inventory when it is reported in a company’s balance sheet is its full cost.

How to Use Full Cost

The full cost of a product is used as the minimum threshold for setting the long-term price of a product; the intent is to set price points that will ensure that a company’s costs will be completely offset by the resulting revenues. Otherwise, price points are likely to be too low, resulting in excessively low profits.