Profit and Loss Performance with Full and Direct Costing

UPF Economics and Business Working Paper No. 606

Posted: 17 Jul 2002

Date Written: March 2002


In this paper we perform a mathematical analyse of profits and losses in direct and full costing. They are compared in different situations, mainly the utilisation of productive capacity and the existence of beginning inventories.

Direct costing was conceived as a system of cost accounting which would show profits as a function of sales. In full costing profits depend on available combinations of sales, production, costs of beginning inventories, etc., and information displayed in financial statements appears incongruent. Differences in profits with full and direct costing increase when full costing allocates fixed costs according to normal production, and in some cases financial statements would show more incongruent performance. It is concluded about the importance that profit and loss statement expresses profits in both costing systems.

Keywords: full costing, direct costing, variable costing, allocation of fixed costs with normal capacity

JEL Classification: M40, M41, M46

Suggested Citation

Argilés Bosch, Josep Maria, Profit and Loss Performance with Full and Direct Costing (March 2002). UPF Economics and Business Working Paper No. 606, Available at SSRN:

Josep Maria Argilés Bosch (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
+34-93 542 24 05 (Phone)
+34-93 542 17 46 (Fax)

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