What is an Actual Cost?

Actual cost is the actual expenditure made to acquire an asset, which includes the supplier-invoiced expense, plus the costs to deliver, set up, and test the asset. This is the cost of an asset when it is initially recorded in the financial statements as a fixed asset.

The actual cost approach is different from the use of estimates to derive costs that may occur in the future. The two approaches are commonly blended together, so that budgeted costs derived in advance are compared to actual costs to create a variance. The variance can be used to control operations and/or to work on improving the accuracy of predictions.

Example of Actual Cost

As an example of actual cost, a company buys production equipment for $50,000. The cost to ship it to the company is $1,000. There is also a $500 import tax, as well as a $2,500 charge to set up a concrete pad for it and hook it up to the firm’s electrical system. This means that the total actual cost of the equipment is $54,000.