Challenges in Applying Full Costing Systems to Cost Management According to Companies’ Production Regimes

Abstract

This study examines the challenges associated with applying the full costing system—also known as absorption costing—in companies operating under different production regimes, with the aim of analyzing the impact of this method on cost measurement and control. The research is based on the practical implementation of this system in two companies with distinct operational models: one adopts a job order (discontinuous) production regime, while the other operates under a continuous (mass production) regime. The findings reveal that in continuous production environments, consideration of work-in-process (both beginning and ending inventories) is essential for accurate cost measurement, as the existence of intermediate inventories directly affects cost structure and product pricing. In contrast, for companies operating under a job order system, this variable becomes irrelevant since production is demand-driven, eliminating the need for intermediate inventories and thus affecting the allocation of costs. Methodologically, the study employs a qualitative-quantitative approach, grounded in a literature review and documentary analysis of accounting and operational data from the companies analyzed. Comparing the two production regimes reveals that indiscriminate application of full costing, without proper adaptation to the production model, can lead to distortions in cost analysis and, consequently, misinformed managerial decisions. Thus, the study underscores the need for a differentiated approach when implementing this method to ensure the reliability of accounting information and the efficiency of cost management.