Essay On Cost Estimation

TOOL COST ESTIMATION

6.1 Estimation Estimation can be defined as an art of finding the cost, which is likely to be Incurred on the manufacture of an article, before it is actually manufactured.Costing may be defined as a system of accounts which systematically and accurately records every expenditure in order to determine the cost of a product after knowing the different expenses incurred in various department.

6.2 Functions of estimation o To calculate the cost of new material needed to manufacture a product. o To find the cost of parts to be purchased from outside vendors. o To find the cost of equipment, machinery, tools, jigs and fixtures etc required to be purchased to make the product. o To calculate the direct and

o To decide the most economical method of making the product. o To submit cost estimates with the competent authority for further action.

6.3 Costing

It is the determination of an actual cost of a component after adding different expenses incurred invarious departments. Costing is an essential work for the efficient management of any enterprise and gives most useful information for the preparation of financial accounts. It enables a business not only to find out what various jobs or processes have costed but also what they should have costed. It indicates where losses are occurring before the work is finished, so that immediate action may be taken to avoid such loss or waste.

6.4 Elements of costing

For the successful functioning of an industrial enterprise, one of the most important considerationis to reduce the cost of manufacture of the product or article, as much as possible without affectingthe quality. This will help in earning higher profits. To achieve the idea of reducing cost one mustbe familiar with elements which make up the total cost of a product. The total cost is made up of three main elements as shown in figure

It is divided into the following: o Direct Material Cost: It is the cost of those materials which are directly used for the manufacture of the product and become a part of the finished product. This expenditure can be directly allocated and charged to the manufacture of a specific product or job and includes the scrap and waste that has been cut away from original bar or casting. o Indirect Material Cost: In addition to direct materials a number of other materials are necessary to help in the conversion of direct materials into final shape. Though these materials are consumed in the production, they don’t become part of the finished product and their cost cannot be directly booked to the manufacture of a specific product. Such materials are called indirect materials. The indirect materials include oils, general tools, greases, sand papers, coolants, cotton waste etc. The cost associated with indirect materials is called indirect material cost.

b) Labour Cost: It is the expenditure made on the salaries, wages, overtime, bonuses, etc. of the employees of the enterprise. It can be classified