What is Actual Costing?

Actual costing is a method of costing in which the actual costs of direct materials, direct labor, and overhead are used to determine the cost of a product or service. It contrasts with standard costing, where predetermined or estimated costs are used. Actual costing provides a more precise picture of the real expenses incurred in production but can be more complex to implement and may result in cost fluctuations from period to period. It's commonly used in situations where cost control and accurate inventory valuation are crucial, and when variations from standard costs need to be closely monitored.