Sometimes, students are confused about the exact meanings of the terms costing, estimating, and pricing. All of these terms are used in connection with cost accounts, but they each have different meanings. Costing means ascertaining the actual cost. Specifically, it can be defined as working out the actual cost of an article that has already been produced or a service that has already been rendered. Estimating, in contrast to costing, refers to ascertaining—in advance—the probable cost of manufacturing an article, completing a contract, or executing a process in the near future. Estimating is based on past (recorded) experience. Estimating necessarily involves some guesswork, but guesses should be guided by facts to the greatest possible extent. One of the advantages of the cost accounting system is that it provides reliable data on the basis of which estimates or tenders for future work can be prepared much more accurately than would otherwise be possible. In this way, the margin of error in estimating a cost is reduced, which enables organizations to provide quotes to clients at a competitive price. When estimating cost on the basis of past cost data, the anticipated changes in relevant costs must be taken into account; otherwise, the estimates may not be correct. Pricing means fixing the selling price of an article. The pricing of an article already produced should be preceded by and based on costing, but other factors are also taken into account (e.g., price of competitive articles, price trends, etc.). In cases where the pricing of an article has to be done before its actual production, it is preceded by estimating rather than costing, and it has to be based on the outcome. However, in such cases, the process of estimating the figure itself must be based on actual cost data, adjusted to anticipated changes in the relevant items of cost.Costing: Definition
Estimating: Definition
Pricing: Definition
Costing, Estimating and Pricing FAQs
Costing refers to ascertaining the actual cost. Estimating, in contrast to costing, refers to ascertaining—in advance—the probable cost of manufacturing an article, completing a contract, or executing a process in the near future. Pricing means fixing the selling price of an article.
The person who prepares cost estimates and tenders is called the estimator.
An estimator requires all relevant data on past prices of articles, quantity of work done in similar circumstances, type of labour and materials, etc.
Costing implies ascertaining the actual cost of an article that has already been produced or a service that has already been rendered. On the other hand, pricing means fixing the selling price of an article.
There are a few ways to ensure that your prices are competitive: research your competition, understand your target market, and offer discounts or promotions. You may also want to consider offering lower prices for bulk purchases or for customers who sign up for a long-term contract.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
