Definition: it is an art of finding the cost, which is likely to be incurred on the manufacture of an article, before it is actually manufactured. Thus, it is the calculation of a probable cost of an article before the manufacturing starts. It also includes predetermination of the quantity and quality of material, labour required etc.

What is Estimating

Estimating required highly technical knowledge about manufacturing methods of operation times etc.

Importance of Estimating

In all organizations, before starting actual production or filling up the tenders, estimation is done. Therefore, accurate estimating is necessary to compete in the market and to be sure whether manufacture of a particular product will be profitable or not. Both over and under estimating are dangerous. Over-estimating leads to increase the cost and hence tenders may not get suitable response. Under-estimating may lead to heavy losses to the concern. Hence accurate estimating is very essential and, therefore, staff of the estimating department must be well qualified, experienced and trained in this profession.


For example, a concern wants to start the manufacturing of lathe-chucks. The firm finds through market survey that its market price is approximately 150 dollars. But estimated price for the manufacture is more than this value. Then the drawings may be sent back to design function, to find out and alternate design, so that price can be reduced. If reduction of price is not possible then idea of manufacturing the chucks would be dropped otherwise it would lead to a great loss.

Aims of Estimating

The main aims of estimating are mentioned below:

1. To help the factory owner in deciding the manufacturing and selling policies.

2. To help in filling up the tender enquiries.

3. To decide about the amount of overheads that helps in comparing and checking the actual overheads of the factory.

4. To decide about the wage rates of the workers after making "Time Study".

5. It helps to decide whether a particular material should be purchased from the market or to be manufactured.

Next Chapters

Estimating Procedure
Difference between Estimating & Costing
Depreciation & Obsolescence
Material Cost Calculation
Calculating Labor Cost
Direct and Indirect Expenses
Component Cost
Machine Shop Estimating
Forging and Forging Types
Starting an Organization
Welding Cost Estimation
Jigs and Fixtures
Qualities of an Entrepreneur
Starting Small Scale Industries
Budget and Budgetary Control
Supply & Law of Supply
Exchange and Barter Exchange
Classification of Market
Money and Types of Money
Trade Cycle
Break Even Analysis
Financial Management

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