Auditor Jargon Part 3 - Full Costing

We have been discussing some of the more unusual terms that auditors tend to throw out there and expect everyone to understand what they're talking about. Auditors, like any profession, have their own manner of specialized speaking. Today we look at the phrase "full costing".

In short, the "full costing" concept requires that you leave "unallowable" costs in the base for computing indirect rates - you don't remove unallowable costs first. Both FAR and CAS requires that when developing indirect rates, you identify a base that best expresses a causal and/or beneficial relationship between the costs being allocated and the base over which the allocation is made. Once you identify the appropriate bases, it would be inappropriate to remove part of the base, such as removing unallowable costs, because then the base is no longer the best expression of that relationship.

Here's the CAS Board's position on Full Costing.

Under the full costing concept, all costs initially allocated to intermediate cost objectives must be subsequently reallocated to final cost objectives. For this purpose, a final cost objective may be established to include unreasonable costs or costs unallowable for other reasons. The bases selected for allocating costs from intermediate cost objectives to final cost objectives are the devices used to associate costs with final cost objectives. If the base selected is a reasonable measure of the relationship between the cost and the cost objectives, the cost will be reasonably allocated to such cost objectives. The Board has referred to this conceptual relationship in the Standards as the beneficial or causal relationship between costs and cost objectives. In addition to the expression of this concept, the Cost Accounting Standards define in appropriate circumstances what criteria should be used to select the allocation base that best expresses this conceptual relationship.