FASB rules require companies to use full absorption cost methods, and do not allow the use of direct costing methods, for financial reporting purposes.

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FASB (Financial Accounting Standards Board) rules require companies to use the full absorption costing method for external financial reporting. This method includes all manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product. Direct costing (or variable costing), which excludes fixed manufacturing overhead from product costs, is not permitted for external financial reporting according to GAAP (Generally Accepted Accounting Principles) as mandated by FASB.

FASB Rules Require Companies to Use Full Absorption Cost Methods