Difference between Estimating and Costing

Although estimating and costing both are required to decide the price of the product, even then the two are different as explained below:

1. Estimation is aimed to calculate the probable cost of the product before the manufacturing starts, and while costing is the determination of actual cost of the product by adding various elements of expenses incurred.

2. Estimation requires a highly technical knowledge hence an estimator is basically an engineer and costing requires the knowledge of accounts and therefore costing is done by accountants.

3. Estimation forecasts about the probable cost and hence one can know before the manufacture that the manufacturing of the product shall be profitable or not, and whether one should manufacture it or not, but costing tells after the manufacture about the profitability of the product.


Procedure for Costing

Actual expenditure incurred in various departments on different times are collected by the costing department. The expenditures are then categorized under the following main heads:

1. Direct material cost,
2. Direct labor cost,
3. Factory overheads,
4. Administrative overheads,
5. Selling overheads.

Costing Methods

Costing method to be followed in a particular enterprise depends upon:

1. Nature of industry
2. Class of products being manufactured
3. Quantity of goods products and
4. The wages of the workers employed and paid the system of payment.
However, the following may be considered to be the important methods of costing:
1. Multiple costs
2. Job costs
3. Departmental costs
4. Unit costs
5. Process costs
6. Operating costs

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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