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. Managerial Accounting

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

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

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

    An accounting method that identifies the activities that a firm ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
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 ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center