Cost Estimation Ascertainment

Cost estimation is the process of pre-determining the costs of a certain product, job or order. Such pre-determination may be required for several purposes such as budgeting, measurement of performance efficiencies, and preparation of financial statements makes or buys decision, fixation of the sale prices of products etc. Cost ascertainment is the process of determining costs on the basis of actual data. Hence, computation of historical costs is cost ascertainment while computation of future costs is cost estimation. Cost estimation as well as cost ascertainment both are inter-related and are of immense use to the management. In case a concern has a sound costing system, the ascertained cost will greatly help the management in the process of estimation of rational accurate costs which are so necessary for a variety of purposes stated above. Moreover, the ascertained costs may be compared with the predetermined costs on a continuing basis and proper and timely steps be taken for controlling costs and maximizing profits.

Value analysis

According to Chartered Institute of Management Accountants, London, Value Analysis is “a systematic inter-disciplinary examination of factors affecting the cost of a product or service, in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability.” The cost of a product is influenced by a number of factors – production, marketing, finance etc. The material and labour costs both play an important role – the quality of the product depends on standard material and standardized process of manufacture through skilled personnel. The different factors are required to be examined closely so that without in any way comprising with the quality and usefulness of the product, the cost is reduced. It is, thus, a technique by the application of which management can achieve cost reduction.

The usefulness of the techniques is in developing substitute materials, new methods of packaging, transportation, marketing and in locating surplus labour, production processes etc. to lower down the costs.

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