why are budgeted costs used for tracking manufacturing costs instead of actual costs?

 

Budgeted cost are used in tracking manufacturing cost because the actual manufacturing cost are prone to fluctuations or are variable in nature

Step-by-step explanation

Budgeted costs of production are predetermined at the beginning of the year. When extended normal costing is used, the budgeted costs rather than the actual costs of production are recorded as they are incurred. Actual costing uses the real expenditures that were incurred in the production of a product or service. Extended normal costing uses the actual costs of direct materials and direct labor but relies on a budgeted figure for overhead costs.

Budgeting costing method is used to estimate and track production costs over a given period and is most commonly used in industries because the Actual costs are difficult to determine due to their fluctuation/ variable nature e.g. variable overhead costs. Such as; indirect materials prices, indirect labor costs, utilities, and depreciation expenses. All this expenses are variable in nature hence maybe difficult to determine so budgeted cost are used instead.

The is possible through extended normal costing method which records predetermined figure of overheads by multiplying the budgeted cost by the actual quantity