Dictionary of Accounting Terms: normal costs
normal costs
- annual average of product costs, not actual product costs that are affected by month-to-month fluctuations in production volume and by erratic or seasonal behavior of many overhead costs. Typical examples of erratic behavior include repairs and maintenance, fuel, air-conditioning costs, vacation and holiday pay, and the employer's share of Social Security taxes. All the costs that distort monthly overhead rates are collected in the annual overhead pool along with the kinds of overhead that do have uniform behavior patterns. In summary, normal costs are the sum of actual direct materials, actual direct labor, and applied factory overhead.
- pension plan costs incurred during an accounting period for services performed during the period. See also normal pension cost.
