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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Discuss the differences among actual costing, normal costing, and standard costing.

To determine

Differentiate between standard, actual and normal costing.

Explanation

Standard Costing:

Standard costing is an accounting tool which is used to measure the variances in the cost. In standard costing, various factors of production are substituted with estimated costs for planning and decision making purposes.

Actual costing:

Actual costing is based on the actual cost of direct materials, direct labor and overhead. This costing is not often used because the cost of overhead can only be calculated after the completion of a job.

Normal costing:

In normal costing, overhead is estimated while actual amounts of direct materials and direct labor are taken into consideration.

Difference between actual, normal and standard costing:

BasisActual CostingNormal CostingStandard Costing
Methodology

Actual costing

uses only

actual cost of direct

materials,

direct labor

and overheads.

Normal costing

uses actual cost

of direct materials

and direct labor

but estimated

cost for overhead...

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