Which one of the following statements is true about estimated costs and standard costs ?

Question

Question

This question was previously asked in

UGC Paper 2: Commerce July 2018

Standard costs are based on scientific analysis and engineering studies while estimated costs are based on historical basis.
Standard cost emphasis is on “what cost will be” while estimated cost emphasis is on “what cost should be”.
Standard costs are more frequently revised compared to estimated cost.
Estimated costs are more stable than standard costs.

Answer 1

The basic difference between Standard cost and estimated cost are:

Standard Cost	Estimated Cost
Standard cost emphasizes what the cost ‘should be’ in a given set of situations.	Estimated cost emphasizes what the cost ‘will be’.
Standard costs are planned costs that are determined by technical experts after considering levels of efficiency and production by using scientific and engineering methods.	Estimated costs are determined by taking into consideration the historical data as the basis and adjusting them to future trends.
It is used as a device for measuring efficiency.	It cannot be used as a device to determine efficiency. It only determines the expected costs.
Standard costs serve the purpose of cost control.	Estimated costs do not serve the purpose of cost control.
Standard costing is part of the cost accounting process.	Estimated costs are statistical in nature and may not become a part of accounting.
It is a technique developed and recognized by management and academicians.	It is just an estimate and not a technique.
It can be used where standard costing is in operation.	It may be used in any concern operating on a historical cost system.

Therefore, option 1 is the correct answer.

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