What is normal costing and actual costing?

Actual costing uses the real expenditures that were incurred in the production of a product or service. Extended normal costing uses the actual costs of direct materials and direct labor but relies on a budgeted figure for overhead costs.

What is the normal costing?

Definition: Normal costing is cost allocation method that assigns costs to products based on the materials, labor, and overhead used to produce them. In other words, it’s a way to find the price of an item that is being produced using three different cost factors (which make up the product cost).

What is actual costing method?

Actual costing is the recording of product costs based on three factors. They are the actual cost of materials, the actual cost of labor, and the actual overhead costs incurred. Overhead costs are allocated using the actual quantity of the allocation base experienced during the reporting period.