What is the Difference Between Standard Costing and Budgetary Control?
🆚 Go to Comparative Table 🆚Standard costing and budgetary control are both cost management tools used in accounting and finance, but they serve different purposes and have different scopes. Here are the main differences between the two:
- Purpose: Standard costing is primarily used for cost control and performance evaluation within specific areas, such as production or operations. Budgetary control is a system of planning and controlling operations by comparing actual results to budgeted results and has a broader scope, encompassing various aspects of financial planning.
- Scope: Standard costing has a restricted scope, limited to production costs only. In contrast, budgetary control covers all the operations of a business, including sales, production, and purchase.
- Time Orientation: Standard costing is more concerned with historical costs and variance analysis. Budgetary control focuses on future-oriented financial planning, forecasting, and target setting.
- Reporting Frequency: Standard costing reports are typically generated on a regular basis, such as monthly or quarterly, to analyze variances and evaluate performance. Budgetary control reports are prepared and compared with actual figures whenever needed.
- Technique: Standard costing involves setting predetermined costs for materials, labor, and overheads and comparing them with actual costs. Budgetary control focuses on setting financial targets and comparing actual results with budgeted results.
In summary, standard costing is a cost accounting system that compares actual costs with predetermined standard costs to measure performance and control costs. Budgetary control is a management function that monitors budgets, controls costs, and evaluates operations in a given accounting year.
On this pageWhat is the Difference Between Standard Costing and Budgetary Control? Comparative Table: Standard Costing vs Budgetary Control
Comparative Table: Standard Costing vs Budgetary Control
Here is a table highlighting the differences between standard costing and budgetary control:
| Parameter | Standard Costing | Budgetary Control |
|---|---|---|
| Purpose | Measure and control costs, analyze variances, and evaluate performance | Plan and control financial activities, allocate resources, and monitor financial performance |
| Methodology | Based on predefined cost estimates and predetermined overhead rates | Uses actual costs and revenue data to compare against budgeted amounts |
| Use of Standards | Focused on setting and using cost standards for internal decision-making | Focuses on comparing actual results with budgeted amounts for external reporting purposes |
| Timeframe | Typically used in the short-term planning process | Covers longer periods, typically an entire fiscal year |
| Scope | Primarily used for cost control and performance evaluation within specific areas, such as production or operations | Has a broader scope, encompassing various aspects of financial planning and control across the entire organization |
| Reporting Frequency | Standard costing reports are typically generated on a regular basis, such as monthly or quarterly | Budgetary control reports are generated at periodic intervals, such as quarterly or annually, to monitor progress against the budget |
| Effect of Temporary Changes | The short-term changes will not influence the standard costs | Temporary changes in conditions can affect the budget and may require adjustments |
| Application | Predominantly used in manufacturing | Applicable in various industries for holistic financial management |
In summary, standard costing focuses on cost control and performance evaluation within specific areas of a business, while budgetary control is a macro-level financial planning tool that sets broader financial targets and monitors progress against the budget across the entire organization.
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- Flexible Budget vs Fixed Budget
- Marginal Costing vs Differential Costing
- Idle Cost vs Standard Cost
- Job Order Costing vs Process Costing
- Zero Based Budgeting vs Performance Budgeting
- Master Budget vs Cash Budget
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