Extended Normal Costing

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.

BREAKING DOWN '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. Overhead Rate

    In managerial accounting, a cost added on to the direct costs ...
  2. Underapplied Overhead

    An accounting record in cost accounting where the overhead costs ...
  3. Full Costing

    A managerial accounting method that describes when all fixed ...
  4. Variable Overhead

    The indirect costs of operating a business that fluctuate somewhat ...
  5. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  6. Cost Of Labor

    The sum of all wages paid to employees, as well as the cost of ...
Related Articles
  1. Economics

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  2. Economics

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  3. Investing

    What's Overhead?

    Overhead is an accounting term used for expenses that have to be paid even if the business doesn’t earn any revenue. The business would not be able to operate without paying its overhead expenses, ...
  4. Investing

    What is Absorption Costing?

    Absorption costing is an accounting method primarily used in manufacturing. In absorption costing, the cost of a manufactured product includes the direct costs plus an apportioned share of the ...
  5. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  6. Economics

    Explaining Cost Control

    For a business, cost control entails managing and reducing expenses.
  7. Investing

    Examining Costs Of Goods Sold (COGS)

    Learn more about the costs that go into production.
  8. 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 ...
  9. Fundamental Analysis

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  10. Personal Finance

    The Most "Wasteful" Industries

    Some industries require a lot more input to produce their product, and investors should be aware of the impact.
RELATED FAQS
  1. How do some contra account types reduce book value?

    Look at a brief example of how cost accounting treats overhead expenses, how those expenses are different from direct labor ... Read Answer >>
  2. How does quantifying fixed overhead volume variance show whether a company is profitable ...

    Find out why some fundamental analysts look at fixed overhead volume variance as an indicator of company profitability or ... Read Answer >>
  3. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
  4. What is the difference between prime cost and conversion cost?

    Understand the difference between prime costs and conversion costs, and learn how each type is used in analyzing business ... Read Answer >>
  5. What is the prime cost formula?

    Learn about the prime cost formula and how to determine which costs are included in this calculation, including the difference ... Read Answer >>
  6. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center