Q. 7. What are the similarities and differences between budgeting and standard costing?

Answer

Similarities between budgeting and standard costing

The following are the points of similarity between standard cost and budget cost:

Standard Costing Budgeting Cost
Predetermined
cost
Standard costs are predetermined costs fixed according to estimates. Budget costs are also estimated costs.
Advance cost Standard costs are estimated in advance, these are compared to actual costs. These costs are also estimated in advance and these are compared to actual costs.
Both aim at
cost control
Standard cost is designed to control costs and bring efficiency. Budgeting costs also aim at cost control and assure addition in employee’s efficiency.
Cost
comparison
Standard costs are designed well in advance and compared to actual costs. These advance estimated costs and compared to actual costs.
Reporting Standard costs are periodically reported to top management Budgetary costs are also reported to management periodically.
Corrective
action
Standard cost lays stress on check of adverse variation and effort is made for correction. Budgetary control lays stress on check of adverse variances.

Differences between Standard costing and Budgetary costing:

Basis of difference Standard Costing Budgetary Costing
Base Standard costs are predetermined or planned costs. Budgetary costs are based on past experiences
Technique Standard costs are based on technical estimates. The budgetary costs are based on historical data and adjusted to the future.
Scope The standards are set for elements of costs. The budgets are prepared for every business activity.
Limited use Standard costs can be used for estimation or forecasting. Budgets are used for men, material and money.
Conditions Standard costs are used in ideal conditions or situations. Budgets are made and used, in own situation or situations.
Per unit Standard costs can be calculated per unit. Budgetary cost cannot be calculated per units.
Nature Standards are set only for expenditure. Budgets are compiled for both income and expenditure.
Coverage Standard cost is not comprehensive, it is only limited to cost operations. Budgetary cost coverage is much more than standard costs.
Parts Standard costs cannot be in parts. Budget can be in parts: only Cash budget.

1 thought on “Q. 7. What are the similarities and differences between budgeting and standard costing?”

  1. I real appreciate the answer now I can differentiate standard and budget costing. Before I was use this terminologies to described the one thing.
    I real appreciate once again.

    Reply

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