Michalski (2008) explains several instances when a company’s estimated profit may go higher or fall below what is realized. This happens mostly during the bidding process. Such incidences may be attributed to several factors. It is further noted that the difference comes about in many cases due to common mistakes committed during the bidding process. First, it happens due to the changes that the company may make to its pricing. Sometimes the price figures used in the estimation may change over time, making the actual to go higher or lower. Second, the difference is caused by a change in overhead costs. The expenses incurred by a company during its operation may vary, making the ultimate profit rise or fall below the estimation. It is further observed that a change in the cost of labor and raw materials may also contribute to this difference in profits. For instance, a company may have estimated each labor input to cost $1000, but due to market changes, the cost rises to $1150. Such increases may reduce the actual profit realized at the end of the trading period. Several other reasons may either drive the actual profit above or below the estimated profits, including changes in the number of scrap costs and expected unit sales. Companies must beware of such changes and monitor them as they move towards profit maximization.
