Accounting Dictionary - Letter N
(also called normal absorption costing) is a costing method under which a company measures the actual costs of direct materials and direct labor, but uses predetermined factory overhead rates to measure the factory overhead cost for a period. In other words, throughout the production time, the company measures and records the actual costs of direct materials and direct labor used, but it estimates a portion of factory overhead to be assigned to products (i.e., factory overhead applied). Normal costing system provides timely cost estimates of products or batches of products.
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