It stands for actual cost; broadly speaking, it is the exact amount of expense that is incurred in connection with an operation/ requirement as opposed to budgeted or estimated amount. An example is the amount of money that was paid by a business to acquire a product/ service.

In a more specific context (in relation to actual costing), actual cost refers to the actual amounts incurred for the direct materials (inputs) and labor:

AC= direct materials cost + direct labor cost + allocated overhead

Where: allocated overhead =  labor hours × actual overhead allocation rate