ABC
ABC (Activity-Based Costing) is a costing method that assigns costs to products based on the activities required to produce them.
It is a costing method that assigns expenses to products based on the actual activities and resources they consume, giving a more accurate product cost.
BOM
BOM (Bill of Materials) is a detailed list of all parts, raw materials, components, assemblies, and quantities required to manufacture a product.
It acts as a product recipe that helps in planning, costing, purchasing and production.
BOP Cost
BOP (Bought-Out Parts) Cost refers to the expense of purchasing ready-made components or parts from external suppliers instead of manufacturing them in-house.
Use: It helps in estimating total project cost, comparing “make vs buy” decisions, reducing production time, and ensuring accurate costing for assemblies and fabrication projects.
BID
BID is a formal offer submitted by a contractor or supplier stating the competitive price, terms, and conditions to complete a project or supply materials.
Use: It is used to compete for projects, help clients compare options, and select the best value proposal.
Costing
Costing, on the other hand, refers to the detailed calculation of actual costs associated with producing a product or completing a project.
It involves gathering real data about the costs of materials, labor, overhead, and other resources involved in the production process.
Costing is typically more precise and is used to set actual budgets, determine pricing strategies, or calculate profitability.
- Focus: Determining actual costs or setting prices.
- Accuracy: More accurate (since it is based on actual data and resources).
- Stage: Occurs after estimation, usually during project execution or at the pricing stage.
- Purpose: To determine the actual cost of production or project execution, to establish a pricing structure, and to assess profit margins.
- Methods: Job order costing, process costing, standard costing, activity-based costing (ABC), etc.
Drawing
Drawing is a detailed technical or engineering illustration that shows a product’s dimensions, shape, materials, and assembly details. It guides manufacturing and inspection.
The use of a drawing is to provide clear technical instructions for manufacturing, fabrication, and inspection, ensuring the product is made exactly as required.
Estimation
Estimation refers to the prediction or forecasting of costs, time and resources required to complete a project or deliver a product.
It is usually performed early in the planning phase when detailed data might not be available.
Estimations rely on historical data, expert judgment or rough calculations and they give a rough idea of the potential costs, resources and timelines.
- Focus: Predicting or approximating future expenses.
- Accuracy: Less accurate (since it is based on assumptions and available data).
- Stage: Typically occurs in the early stages of a project (planning or design phase).
- Purpose: To determine whether a project is feasible and to plan accordingly.
- Methods: Analogous estimating, parametric estimating, expert judgment, three-point estimating, etc.
Expenses
Expenses in costing are the additional costs incurred during a project or production process, such as transport, taxes, utilities and administrative charges.
Use: They help in calculating the true total cost, preparing accurate estimates, and setting proper selling prices.
Feasibility
Feasibility means checking if a project, idea, or plan is practical, possible, and worthwhile to execute.
A feasibility study is used to determine whether a project is viable, practical, and financially worthwhile before starting it.
It helps identify risks, required resources, costs, and expected outcomes to support better decision-making.
Grade
Grade refers to the quality level or classification of a material or product based on its properties, performance or standards.
In estimation, grade is used to determine the quality, strength, and cost level of a material, helping select the right material and calculate accurate pricing.
Historical data
Historical data in costing is the past records of costs, prices and expenses from previous projects or production activities.
Use: It helps estimate future costs accurately, plan budgets, compare trends and make informed pricing and procurement decisions.
Inquiry
An inquiry is a request for information, price, or details about a product or service, usually made before placing an order.
An inquiry helps buyers get price, specifications, and availability details so they can compare options and make informed purchasing decisions.
Job work
Job work in costing is the process of outsourcing specific tasks or operations to an external agency or contractor instead of doing them in-house.
Use: It helps reduce in-house workload, save costs, access specialized skills, and complete projects efficiently.
Labour cost
Labour cost in costing is the expense of worker time, including wages, benefits and productivity-related costs required to complete a task or project.
Use: It helps estimate project cost, plan manpower, allocate resources, and determine accurate pricing for fabrication, construction, or manufacturing work.
MHR
MHR (Machine Hourly Rate) is the cost of running a machine for one hour, including expenses like power, labor, depreciation, maintenance, tooling, and overhead.
MHR is used to calculate accurate machining cost, estimate product pricing, compare machine efficiency and plan production budgets.
Material cost
Material cost is the expense of all raw materials, components, and consumables required to produce a product or complete a project.
Use: It helps in accurate cost estimation, budgeting, supplier comparison, and determining overall project cost in manufacturing or construction.
MTO
Material Take-off (MTO) is the detailed list of all materials needed for a project, including quantities, sizes, and specifications, extracted from drawings or documents.
MTO is used to estimate material cost, plan procurement, reduce wastage and ensure the right materials are available for construction or manufacturing.
Negotiation
Negotiation in costing is the process of discussing and adjusting prices, terms, and conditions with suppliers, contractors, or clients to reach a mutually beneficial agreement.
Use: It helps reduce costs, improve terms, secure better deals and ensure competitive and accurate project pricing.
Offer
Offer is a formal proposal from a supplier showing the competitive price, terms, and conditions for supplying a product or service.
Use: It is used to negotiate, finalize deals, and confirm agreed pricing before placing an order.
Overhead
Overhead refers to the indirect costs required to run a project or business, such as office expenses, utilities, supervision, and equipment depreciation.
Use: Overheads are added to direct costs to determine the true project cost, ensure profitability and set accurate pricing.
Price
Price is the amount of money required to buy a product, material, or service.
In costing, Price refers to the unit rate assigned to a material, product, labor or service when preparing a cost estimate. understanding price is essential because even small variations can significantly impact the final budget, profitability and cost control.
Use of Price in Costing: Price is used to calculate total material cost, estimate labor cost, compare vendor quotations and analyze cost variations during budgeting or project planning.
Price also supports purchase decisions, negotiation with suppliers and forecasting future expenses.
Overall, accurate pricing ensures that the project remains financially viable, competitive and aligned with client expectations.
Process
Process in costing refers to the series of operations or steps involved in producing a product or completing a project.
Use: It helps track costs at each stage, identify efficiency improvements, allocate resources accurately and calculate total production or project cost.
Profit
Profit in costing is the added margin included above the total cost of a project or product to ensure financial gain.
Use: It helps set selling prices, maintain business sustainability, support growth and ensure each project remains financially beneficial.
Quote
Quote (Quotation) is a supplier’s formal competitive price offer for specific materials, products or services, including cost, terms and delivery details.
Use: It helps buyers compare suppliers, plan budgets, and make purchase decisions accurately.
RFQ
RFQ (Request for Quotation) is a document sent to suppliers asking them to provide pricing, terms, and delivery details for specific materials or services.
It helps compare vendors and select the best offer.
Subcontracting cost
Subcontracting cost is the expense paid to external vendors or specialists to perform specific tasks or services that are not done in-house.
Use: It helps in accurate project costing, resource planning, quality work from experts and timely completion of activities by outsourcing specialized jobs.
Specification
Specification is a clear, detailed description of a product’s technical requirements, including materials, dimensions, standards, performance, and quality criteria.
It tells exactly what needs to be made or supplied.
Unit
Unit in costing is a single measurable quantity of a product or service used as a basis for cost calculation. Example: For a steel plate, 1 ton can be considered a unit; for construction, 1 cubic meter of concrete is a unit.
Use: It helps calculate cost per unit, compare expenses, prepare accurate estimates and set pricing.
Value
Value in costing is the monetary worth of a material, product or service based on its cost, quality, and utility.
Use: It helps assess total project cost, compare alternatives, make procurement decisions and ensure cost-effective spending.
Waste
Waste in costing is the material or resource loss that occurs during production or project execution.
Use: It helps calculate accurate material requirements, control costs, reduce losses and improve overall efficiency.
ZBC
ZBC (Zero-Based Costing) is a costing method where the cost of a product or process is calculated from zero, by analyzing every component, material, labor and overhead from scratch instead of using past costs.
ZBC is used to identify true cost, eliminate unnecessary expenses, improve pricing accuracy and support cost-reduction decisions.