Extended Normal Costing

AAA

DEFINITION of 'Extended Normal Costing'

In managerial accounting, a method of tracking production costs based on an approximation of the prices of the inputs multiplied by the actual quantity of inputs used. In normal costing, the actual prices are used for direct labor and direct materials, and only the overhead rate is estimated. Extended normal costing uses estimates for direct labor and direct material prices as well as overhead.

INVESTOPEDIA EXPLAINS 'Extended Normal Costing'

Selecting an accurate method of costing is important for maximizing profitability. Since extended normal costing relies heavily on estimates of input prices, it may produce inaccurate results unless estimates are carefully prepared. However, in cases where it is very difficult to track all of the costs going into a product, extended normal costing may be the most effective ways to assign production costs.



RELATED TERMS
  1. Full Costing

    A managerial accounting method that describes when all fixed ...
  2. Average-Cost Method

    A costing method by which the value of a pool of assets or expenses ...
  3. Absorption Costing

    A managerial accounting cost method of expensing all costs associated ...
  4. Managerial Accounting

    The process of identifying, measuring, analyzing, interpreting, ...
  5. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Retirement

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  2. Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

    FAS 142 is an accounting rule that changes the way companies treat goodwill. Be aware of the impact it has on reported earnings to avoid making bad investment decisions.
  3. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  4. Fundamental Analysis

    Financial Footnotes: Start Reading The Fine Print

    Find out what could be hidden in this often-overlooked part of the financial statements.
  5. Fundamental Analysis

    Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  6. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  7. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  8. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  9. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  10. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center