Actual costs vs. projected costs: What's the difference?

Actual and projected costs are crucial in budgeting for a business. Projected costs are estimated costs based on the previous period's sales and expenses. While actual costs are the actual amounts spent during the period. At the end of that period, companies will compare the actual vs the projected costs and see if they overspent.

To understand the difference between projected cost vs. actual cost, we must first know their definitions. So, what is the projected cost (PC)? The projected cost is the estimated cost supported by the company's financial metrics history, i.e., sales. It is computed to analyze the total spending on a project and do the amendments beforehand to subside additional costs. On the other hand, the actual cost is the amount spent in reality during that particular period.

Projected costs are the probable expenses that may occur within the business in a given time. The actual cost, on the other hand, is the exact cost that a business bear in a specified time. Collectively, both these terms are essential for your financial planning and budgeting. Plus, these financial values help you keep track of overall business revenue.