ECONOMICS

Detailed explanation-1: -The product costs that make up normal costing are actual materials, actual direct costs and manufacturing overhead. The materials and direct costs are the true costs that are associated with producing the item such as raw materials (the materials that make up the product) and labor.

Detailed explanation-2: -Actual costing uses the real expenditures that were incurred in the production of a product or service. Extended normal costing uses the actual costs of direct materials and direct labor but relies on a budgeted figure for overhead costs.

Detailed explanation-3: -The Normal Costing Method For example, if Paul’s plant has $750, 000 of budgeted overhead and 50, 000 in budgeted labor hours, the rate is $750, 000 / 50, 000 = $15.00 per labor hour.

Detailed explanation-4: -Normal cost means the annual cost attributable, under the actuarial cost method in use, to current and future years as of a particular valuation date excluding any payment in respect of an unfunded actuarial liability.