Learning Materials For Accounting, Management , Finance And Economics.

Sunday, November 7, 2010

Distinction Between Standard Cost And Estimated Cost

Estimates are the expressions of of opinion based upon past experiences whereas the standard costs are based upon standard rate that are very carefully developed and set as scientifically as possible. However, both estimated costs and standard costs are related to future period of time but there are some significant differences between them. Some major differences between standard costs and estimated costs are listed below:

1. Estimated costs are the expressions of opinion based upon experience. Standard costs are based upon standard rates that are carefully developed and set as scientifically as possible.

2. Estimated costs are used by those firms that follow historical costing system. Standard costs are used by those organizations that follow standard costing.

3. Estimated costs are based on actual costs and anticipated costs. Standard costs are fixed after scientific analysis of relevant cost elements.

4. Estimated costs are based on approximation. Standard costs are based upon specifications.

5. Estimated costs are normally used as guideline for price determination, quoting the selling price etc. Main purpose of standard costs is to serve as a tool for cost control.