Appendix Costing and estimating

Costing is the pricing of completed work taking into account not only all the direct expenses— materials, wages and insurances, fuel and power, machining costs, workshop expenses, etc.—but also a fair proportion of the indirect expenses—salaries, office expenses, rent, rates, depreciation, interest on capital, etc.— expressed as a percentage addition to the workshop cost. Estimating is the intelligent anticipation of what the total cost is likely to be, and as such must have a basis of actual costing experience. In other words good estimating is the product of sound judgment and careful appraisal of the amount of labour involved in the proposed work, in the light of past experience of other comparable work.

In costing and estimating for quantity production the work can be broken down into a sequence of bulk operations, and accurately priced by cost accountants and experts in work-study. Where large runs are contemplated, or where a totally new design is to be introduced, a finished prototype will be made by skilled craftsmen, knocked down into its component parts, further simplified or systematized for repetition machining, and then costed either with trial-runs of the individual components or recorded costing of other similar operations. This measure of accuracy, often carried to decimal points per item, is not attainable in hand-production for most of the work will be continually breaking fresh ground, therefore the estimator must rely on his own good judgment, building up as he goes his own personal file of cross-reference. There are, however, certain guiding principles which, while they will not solve his equations for him, will at least suggest a method.

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