What is Estimated Cost?

Estimated cost is the projection of the amount of costs that will be incurred to build a product or construct something. This amount is derived as part of the capital budgeting process for an internal project, or as part of a sales bid when attempting to sell to a customer.

The party issuing an estimated cost may be held to the amount of the projection under the terms of a fixed price contract. In this case, it makes sense for the contractor to over-estimate the estimated cost, in order to have enough buffer in its pricing bid to ensure that it can earn a profit on the deal.