COST ACCOUNTING AND ESTIMATING. 245 



ESTIMATING. 



Cost estimates are prepared primarily to form the basis of a bid or a selling price, 

 and secondarily for the information of the general manager so tliat he may be advised 

 what allowance has been made to each department so as to assist in the reduction of oper- 

 ating costs. The importance of the latter function is being recognized more and more, and 

 an excellent paper on this subject, entitled, "How the Cost System Assists the Management 

 in the Reduction of Operating Costs," was presented by Mr. William B. Ferguson, assistant 

 to the president. Hog Island, before the Society of Industrial Engineers, on March 26, 1920. 



Wliile the selling price is detennined by the amount the consumer is willing to pay and 

 the manufacturer willing to accept, few lump-sum contracts are taken without some form of 

 estimate. The acceptance of a contract on a competitor's bid involves the dangerous assump- 

 tion that the competitor has not made an error and that the purchasing power and manu- 

 facturing efficiency of both plants are equal. 



The builder usually prepares his estimates on the same basis and, after submitting sev- 

 eral bids, soon ascertains what allowance must be made over the estimates prepared by him 

 to compete with other bidders. Thus, if he is consistently high, with a constant percentage 

 as margin, he knows that, if he desires to obtain the contract, it is necessary to correspond- 

 ingly reduce the amount of margin. 



All estimating — in fact, the solution of all engineering problems — is performed by com- 

 parison. A formula is merely an expression endeavoring to reconcile by functions all the 

 various conditions entering into the problem, and the closer the functions and formula repre- 

 sent the condition the more vmiform will be the coefficients in the formula. The personal ele- 

 ment in the selection of factors to represent the proposed condition is one of the reasons for 

 erratic results in estimating. 



Designing and estimating would be reduced to a more scientific basis if, under the given 

 engineering condition, the same dimensions would be obtained at all times, irrespective of 

 the person who is solving the problem. Again, after the size has been determined, if the 

 same weight and cost would be obtained, then estimating would be reduced to somewhat of 

 an exact science. The solution of this problem has been attempted by the method described 

 herein, and, as far as it has been applied, has been found to be very successful. 



There is usually a time limit to every estimate, and the problem is to make the best use 

 of this time. One essential is to proportion the time according to the money value of the 

 item, and another is to avoid repeat operations in every succeeding estimate. For example, 

 it is unwise to devote a large amount of time to the calculation of structural foundations 

 and then hurriedly figure the shell plating, merely because this portion is easy to calculate. 

 Again, it is not desirable to devote a large amount of time to an intricate iron casting and 

 to approximate the weight of a composition casting costing several times as much. Repeat 

 operations are avoided by the standardization of particular items, as will be described later. 



A good estimating system should be flexible enough to make the best use of all the par- 

 ticulars specified by the purchaser, and where these particulars are not specified it should pro- 

 vide means for determining the sizes according to the best standard practice. 



Since estimating consists largely of a comparison with past practice, it is of importance 

 that items to be compared should be on exactly the same basis ; otherwise the estimator must 

 make the proper adjustment in his mind before applying the new rates. In former years, 

 when there was no great fluctuation in the material and labor market, it was sufficient to use 

 the price-per-pound method for both material and labor, making slight modification as found 



