How to Differentiate Between Standard Costing and Budgetary Control
Standard costing and budgetary control are both helpful techniques to improve the efficiency of employees, control production costs, and establish responsibility structures within corporations.
The main differences between standard costing and budgetary control are summarized and discussed in this article.
Standard costing is used only for those aspects which are related to production and its associated costs. However, budgetary control is not limited to production.
In budgetary control, various budgets are prepared and analyzed that are not related to production (e.g., the cash budget).
2. Data Used
The data used in standard costing are the estimated costs related to different elements of cost. These are data collected and processed based on technical and expert advice.
By contrast, the data used in budgetary control are generally from the immediate past, in which proper adjustments are made keeping in mind possible future changes expected during the budget period.
Standards are not fixed for a certain period; instead, they are used relatively for a long time. Standards do not change regularly. They are revised only when major changes have occurred in production processes, technology, or other areas.
4. Proposed Action
Standard cost determines the target of activities, while budgets disclose the possible maximum limits of the activities.
6. Partial Use
Budgetary control may be exercised partially for a few activities. It is not always necessary to prepare budgets for all the activities. However, standard costing is not used partially.
Budgetary control is possible even when standard costing is not followed. By contrast, when standard costing is adopted, budgetary control must be exercised. Thus, budgetary control becomes the basis for standard costing, which is not a basis of budgetary control.
Standard costing is suitable only for industries in which production processes are relatively uniform and standardized. Budgetary control can be used even in industries where production is not repetitive or standardized.
Difference Between Standard Costing and Budgetary Control FAQs
The scope, data used, period, proposed action, coverage, partial use, dependent nature, and application are the major elements where there is a difference between Standard Costing and budgetary control. Standard Costing is limited to production-related costs only. However, in budgetary control budgets related to various activities are prepared.
As both Standard Costing and budgetary control are used for proper planning, control, and decision making; both are comprehensive in nature; both reveal projections; both seek to exploit economies; and lastly, both formulate budgets.
The main elements of Standard Costing include estimated costs, technical advice, expert opinion, target value, actual cost, variance analysis, and lastly the need for revision.
Budgetary costing contains such elements as past data, proper adjustments for future expected changes, and the maximum limits of the activities only.
Industries do not use Standard Costing partially because standards do not change regularly. When there is a major change in production processes or technology, then only are changes made to the standards. Thus, these are not used for short periods.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.