Professional Documents
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KEY TAKEAWAYS
● Normal costing records actual expenditures as they occur in the course
of production.
● Extended normal costing records a predetermined figure for overhead
costs.
● Extended normal costing is useful in a business that experiences
constant fluctuations in overhead costs.
Specifically, the budgeted cost of production is multiplied by the actual
quantity of the products or services that were purchased for use in production.
That is, extended normal costing figures are predetermined and do not need
to be calculated to develop a total cost estimate.
The disadvantage of extended normal costing is that the cost figures may be
inaccurate since they are determined in advance of actual production and real
costs may change over time. However, in cases where it is very difficult to
track all the costs going into a product, extended normal costing may be the
most effective way to assign production costs.