Standard Cost and Estimated Cost Difference

Difference between Standard Cost and Estimated Cost; Standard costs stand used as a criterion for evaluating cost savings. Because the purpose of setting standards is to ensure that costs do not exceed certain limits. The actual one stands compared with the standards and the necessary measures stand taken based on the differences. On the other hand, the control aspect stands not included in the estimated costs. Because in the case of Estimated Expenditures, no further action stands taken. And in most cases, the estimated costs stand used to prepare and submit bids and set costs.

Here are the articles to explain, The distinction and difference between Standard Cost and Estimated Cost!

Standard costs exist usually determined based on scientific and technical analysis. However, estimated costs exist determined only based on past cost data and expected future changes. In this way, the estimated costs differ from the standard costing, and the differences between them exist mainly based on how the costs exist determined in advance.

What is the standard cost?

Standard cost is a planned or budgeted cost. The standard price stands based on engineering designs and production methods that can obtain under normal commercial conditions. It consists of materials, labor, and overhead parts and is normally part of the BOM.

What is the estimated cost?

Estimated costs are projections of the number of costs that will incur in producing a product or building a building. This amount obtains as part of the capital budgeting process for the internal project or as part of the sales offer if you are trying to sell to a client. The party paying the estimated costs may exist held at the level of the projection under the terms of the fixed price contract.

The distinction and difference between Standard Cost Vs Estimated Cost;

Although both estimated costs and standard costs stand computed in advance of production, and are, therefore, predetermined costs, estimated costs differ from standard costs in the following respects;

Objective Difference:

Estimated costs exist intended to ascertain what the costs will be while standard costs aim at what costs should be.

Calculation Difference:

Estimated costs stand calculated based on past performance standing adjusted in the light of anticipated changes in the future. Standard costs, on the other hand, stand ascertained on a scientific basis keeping in view certain conditions of efficiency.

Computation Difference:

Estimated costs stand for predetermined costs based on past performance and adjusted for anticipated future changes. They stand thus established in advance as the best estimates subject to the assumption that costs are free to move as they like. Standard costs, on the other hand, represent a carefully formulated advance estimate of what future costs should be under conditions expected to prevail. They are based on technical and engineering estimates. As such, they stand for planned costs expected to achieve in a particular production process under normal conditions.

Aid to Management Difference:

Estimated costs are not helpful to management in accomplishing management functions as they stand not scientifically predetermined costs. But standard costs involve operational analysis and evaluation and a comprehensive review of internal and external factors. They become reliable yardsticks for product costing, product pricing, planning, coordination, and price control purposes.

Emphasis Difference:

Estimated costs emphasize the cost with which it stands compared at the end of the accounting period. If the estimated costs stand found higher or lower than actual costs, they stand revised for use in the next accounting year. In standard costing the emphasis stands to put on standard costs, i.e., what costs of material labor and overhead should incur if the factory is to operate as a highly efficient unit.

Under standard costing, actual costs stand ascertained only to facilitate their comparison with standard costs. Historical costs emphasize what the ‘costs are’ while estimated costs emphasize what the ‘cost will be’. Standard costs, on the other hand, emphasize what the ‘costs should be’.

Use Difference:

The estimated costs stand used only as statistical data, whereas standard costs exist used as a regular system from which variances stand ascertained and the reasons for such variances exist analyzed, and corrected measures stand taken promptly. In an estimated costing system, the emphasis is on cost ascertainment for fixing selling prices.

As such, estimated costs are not of much practical significance from the point of view of cost control. Standard costing, on the other hand, being precise, provides a scientific basis with which actual costs stand compared. Accordingly, standard costs serve as an effective tool for cost control.

Accuracy Difference:

Being based on the average of past costs adjusted for anticipated changes in the future, estimated costs are less likely to be precise. However, standard costs stand fixed only after scientific analysis of relevant factors having a bearing upon costs. As such, standard costs tend to be more precise and accurate than estimated costs.

Accuracy and Reliability Difference:

Standard costing is a scientific method of cost control and it is more reliable and accurate, whereas estimated costs are not so precise and reliable.

Records Difference:

Estimated costs are statistical. As such, they are not a part of the accounting system. They stand only posted in the cost sheet for comparison. They stand used as statistical data for future costs. But, standard costs are a part of the accounting system. They have a place in the accounting records and stand used for ascertaining variances from the actual costs.

Revision Difference:

The estimated cost stands adjusted to the actual cost and expected changes in the coming period. While Standard Cost exists not generally revised unless it has existed set incorrectly or it has become irrelevant to the changed situations. Thus, Standard Cost is free from frequent changes or modifications.

Stability Difference:

Standard costs are more stable than estimated costs because estimated costs stand set on the assumptions of free movement of cost.

Barometer of Efficiency Difference:

Estimated Cost—being only an expression of likely cost in the future—cannot use to measure efficiency or otherwise. But the standard cost stands used as a barometer of efficiency since it compares with the actual cost.

Applicability Difference:

Estimated costs are generally applicable to concerns engaged in construction work such as buildings, factories, bridges, ships, and other types of concerns such as bakeries, bottling companies, medicines, and dairy products. Although the principles underlying standard costing can apply to any industry, standard costs are most suitable for industries engaged in mass production.