Actual cost refers to the total expenses incurred in producing a product or delivering a service. This includes direct costs, such as materials and labor, as well as indirect costs like overhead and administrative expenses. Understanding actual cost helps businesses assess profitability and make informed financial decisions. Calculating actual cost is essential for budgeting and financial reporting. It allows companies to compare expected costs with actual expenses, helping identify areas for improvement. By analyzing actual costs, businesses can optimize their operations and enhance overall efficiency, ultimately leading to better financial performance.