Q. 5 What is the difference between standard and estimated costs
Standard costs and Estimated Costs both are pre-determined costs of any production. Both these costs are calculated in advance before actual production is done and completed. Therefore. sometimes, some people confuse as similar to the standard costs and estimated costs. But actually these are two different costs and having certain differences, these differences are following as:
1. Cost determination. The determination of standard costs is a difficult process, which is determined with the help of experts opinion and careful analysis of various cost data and other information. For determination of estimated costs no expert opinion or scientific analysis of the last data is done.
2. Execution. Estimated costs may be determined by one person of the accounting department, but for determination of standard costs entire machinery in production activities is consulted.
3. Period. Estimated costs are determined for a certain period only, but standard costs are not determined of one period of production. It remains unchanged for a very long time unless standards are not needed to be revised.
4. Attention on short term events. While computing standard costs, short term happening and events are not considered, but for the purpose of estimated costs, short term fluctuations are also considered if they are expected to happen during the period for which estimated cost is determined.
5. Cost comparison. Standard costs are compared with actual costs. variances are decisions are taken for control of cost, But such comparison and variance analysis is not done with the help of estimated costs.