Question

Compare actual and normal costing. What is a benefit of each? What is a circumstance in which each would be appropriate?

Answer 1

Particulars	Actual Costing	Normal Costing
Production cost	Uses actual cost of material and labour to calculate production cost	uses indirect materials and labor costs to estimate production costs
Allocation of manufacturing overhead	Based on actual volume	Based on predetermined expected production volume
Benefits	1. More accurate cost reporting 2. Requires no pre planning or projections	1.Less time and effort required for projections. 2.Cost saving in record keeping
Circumstances	A company having relatively stable production volumes from month to month will have few problems with actual costing.	A company that experiences continous variation in its production volumes better use Normal costing.