What is Normal Costing?

Normal costing is used to derive the cost of a product. This approach applies actual direct costs to a product, as well as a standard overhead rate.

What is Standard Costing?

Standard costing is the practice of substituting an expected cost for an actual cost in the accounting records. Subsequently, variances are recorded to show the difference between the expected and actual costs.

Comparing Normal Costing and Standard Costing

The key difference between normal costing and standard costing is that normal costing employs actual costs for materials and direct labor, while standard costing uses predetermined costs for both of these items. These differences can result in significant variations between the methods in the costs applied to inventory and the cost of goods sold, if the standards used differ markedly from actual costs.