How to do Cost Estimation? Discussion

Cost Estimation: As against the ascertainment of actual costs, costs may also be predetermined. Cost estimation is the process of predetermining the cost of goods or services.

These costs are prepared in advance of production and preceded the operations. Estimated costs are the future costs and are based on the average of the past actual costs adjusted for anticipated changes in the future.

Cost estimates may have the following uses:

• Cost estimates are used in making price quotations and bidding for contracts.
• Cost estimates are used in the preparation of budgets.
• It helps in evaluating performance.
• It is used in preparing projected financial statements.
• Cost estimates may serve as targets in controlling the costs.

Due care should be taken in cost estimation because a high price quotation may result in loss of business.