Estimates of future job costs serve not only as a basis for bidding and price setting but also as a standard for measuring efficiency and evaluating the performance through comparisons with the actual...

Estimates of future job costs serve not only as a basis for bidding and price setting but also as a standard for measuring efficiency and evaluating the performance through comparisons with the actual costs incurred. Since under this system, all costs such as direct materials, direct labour and other expenses which can be traced directly to particular or specific jobs must be forecast as separate identifiable amounts, subsequent comparisons between actual job costs incurred and estimated job costs can be made on an item-by-item basis. This process helps the management in assigning responsibilities for variance in costs to different responsibility centres that worked on the job. Thus, this process assists the management in discharging its control function.