Estimated costs represent only an attempt at anticipating actual costs and are subject to correction as they are compared to actual costs.
The estimated cost system consists of:
- Predetermine the unit costs of production estimating the value of direct raw material, direct labor and indirect charges that are considered to be obtained in the future, subsequently comparing the estimated costs with the real ones and adjusting the corresponding variations. a system of predetermined costs taking into account the experience of previous years.
Estimated cost indicates what it may cost to produce an item, which is why that cost will be adjusted to historical or actual cost. The comparison results in discrepancies between the estimated and the real, known as variations, which will be a wake-up call that forces us to study the reason for the difference.
The probable calculation of the cost of a unit to be produced:
- Technical. It indicates the consumption necessary to obtain a product and serves as the basis for the accounting estimate. Accounting. Valuation and proper recording of the consumption determined in the technical estimates.
Characteristics of the estimated cost system
- The estimated costs are obtained BEFORE starting the manufacturing and DURING its transformation. They are based on predetermined calculations on previous statistics and a wide knowledge of the industry in question. To obtain them it is essential to consider a certain volume of production and determine the unit cost. When making the comparison of the real ones with the estimates, they should always be adjusted to the real thing, adjusting at this time to the variations. Estimated cost indicates what an item “MAY” cost.
The estimated costs are aimed at
- Contribute to setting sales prices in advance Serve as a preventive and internal control instrument Helps in managerial decision making Determine quotes Assess the affordability of producing an item
Advantages of the estimated cost system
- The costs of the materials and the operations are known separately, thus knowing the alterations that occur. It facilitates having safe estimates when the design of a product or the manufacturing method is changed. Its study leads to efficient costs. Its obtaining with Prior to production leads to the adoption of correct standards in the purchasing, production and distribution functions. They are used as a transitory step to arrive at the development of a more complete cost system. That is, to arrive at the elaboration of the estimated cost sheet.
Through the following video-lesson, Professor Juan Antonio Molina, from the Benemérita Universidad Autónoma de Puebla, makes a complete explanation of the estimated costs, addressing their accounting record, their correction to real costs and the preparation of the production cost statement and sale, both actual and estimated. (4 videos, 57 minutes)
