Accounting Assignment Help With Standard Cost And Estimated Costs

4.3 Standard Cost and Estimated Costs

Estimates are predetermined costs which are based on historical data and is often not very scientifically determined. They usually compiled from loosely gathered information and therefore, they are unsafe to use them as a tool for measuring performance. Standard costs are predetermined costs which aims at what the cost should be rather then what it will be. Both the standard costs and estimated costs are used to determine price in advance and their purpose is to control cost. But, there are certain differences between these two costs as stated below:

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The following are some of the important differences between standard cost and estimated cost:

Standard CostEstimated Cost
Standard cost emphasizes as what the cost ‘should be’ in a given set of situations.Estimated cost emphasizes on what the cost ‘will be’.
Standard costs are planned costs which are determined by technical experts after considering levels of efficiency and productionEstimated costs are determined by taking into consideration the historical data as the basis and adjusting it to future trends.
It is used as a devise for measuring efficiencyIt cannot be used as a devise to determine efficiency. It only determines expected costs.
Standard costs serve the purpose of cost controlEstimated costs do not serve the purpose of cost control.
Standard costing is part of cost accounting processEstimated costs are statistical in nature and may not become a part of accounting.
It is a technique developed and recognised by management and academeciansIt is just an estimate and not a technique
It can be used where standard costing is in operationIt may be used in any concern operating on a historical cost system.

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