Full costing versus variable costing: Does the choice still matter? An empirical exploration of UK manufacturing companies 1988–2002

Christopher Kam Man Pong, Falconer Mitchell

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

This paper explores the impact of the choice of full costing, as a basis for stock valuation (SSAP 9), on the reported profitability of UK manufacturing companies from 1988–2002. It does so by assessing the sensitivity of these companies' profits to the adoption of the variable costing alternative and so explores the potential for this accounting method choice to influence this important performance measure. Tests are undertaken to identify the accounting significance of the stock asset and the stock adjustment, the longer term effects of the choice on the time series of companies' profits and the shorter term effects as reflected in variation in the annual profit signal (particularly, profit vs loss and profit growth vs profit decline). The results indicate that stock remains a substantial variable in profit measurement and that there are likely to be a minority of companies whose reported profitability during the period changes significantly depending upon the basis of stock valuation used. Given the absence of any definitive case for full costing over variable costing, these findings suggest that further research and some consideration of the modification of the existing standard to permit financial statement users to ascertain variable costing based profits are merited.
Original languageEnglish
Pages (from-to)131-148
Number of pages18
JournalThe British Accounting Review
Volume38
Issue number2
DOIs
Publication statusPublished - Jun 2006

Fingerprint Dive into the research topics of 'Full costing versus variable costing: Does the choice still matter? An empirical exploration of UK manufacturing companies 1988–2002'. Together they form a unique fingerprint.

  • Cite this