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. Absorption Costing

    A managerial accounting cost method of expensing all costs associated ...
  3. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  4. Managerial Accounting

    The process of identifying, measuring, analyzing, interpreting, ...
  5. Average-Cost Method

    A costing method by which the value of a pool of assets or expenses ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. Footnotes: Early Warning Signs For Investors
    Retirement

    Footnotes: Early Warning Signs For Investors

  2. Accounting Rules Could Roil The Markets
    Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

  3. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  4. Financial Footnotes: Start Reading The ...
    Fundamental Analysis

    Financial Footnotes: Start Reading The ...

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center