What are the three valuation methods of costing inventory

The three valuation methods of inventory are actual, normal, and standard costing. 

A company using the actual costs of direct materials, direct labor, and overhead to determine work in process inventory cost is employing an actual cost system. Service businesses that have few customers and/or low volume, such as some advertising agencies or consulting firms, may use an actual cost system. 

However, because of the reasons, many companies modify actual cost systems by using predetermined overhead rates rather than actual overhead costs. This combination of actual direct materials and direct labor costs with predetermined overhead rates is called a normal cost system. 

If the predetermined rate is substantially equivalent to what the actual rate would have been for an annual period, its use provides acceptable and useful costs.

A standard cost system allows companies to quickly recognize deviations or variances from normal production costs and to correct problems resulting from excess usage and/or costs. Actual costing systems do not provide this benefit, and normal costing systems cannot provide  it  in  relation  to materials and  labor.