Saturday, January 23, 2010

Cost Estimation and Cost Ascertainment

Cost estimation is the process of pre-determining the cost of a certain product job or order. Such pre-determination may be required for several purposes. Some of the purposes are as follows:
  • Budgeting
  • Measurement of performance efficiency
  • Preparation of financial statements (valuation of stocks etc.)
  • Make or buy decisions
  • Fixation of the sale prices of products
Cost ascertainment is the process of determining costs on the basis of actual data. Hence, the computation of historical cost is cost ascertainment while the computation of future costs is cost estimation.
Both cost estimation and cost ascertainment are interrelated and are of immense use to the management. In case a concern has a sound costing system, the ascertained costs will greatly help the management in the process of estimation of rational accurate costs which are necessary for a variety of purposes stated above. Moreover, the ascertained cost may be compared with the pre-determined costs on a continuing basis and proper and timely steps be taken for controlling costs and maximizing profits.

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