Difference Between Standard Costing and Budgetary Control

Both Standard Costing and Budgetary Control are based on the principle that costs can be controlled along certain lines of supervision and responsibility, that focuses on controlling cost by comparing actual performance with the predefined parameter. However, the two systems are neither similar nor interdependent. Standard Costing delineates the variances between actual cost and the standard cost, along with the reasons.

On the contrary, Budgetary Control, as the name suggest, refers to the creation of budgets, then comparing the actual output with the budgeted one and taking corrective action immediately.

The two systems aim at measuring performance by fixing targets. Nevertheless, The former, forecasts, cost accounts but the later projects detail about financial accounts. Similarly, there are many differences between Standard Costing and Budgetary Control, which has been discussed below.

Content: Standard Costing Vs Budgetary Control

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for Comparison	Standard Costing	Budgetary Control
Meaning	The costing method in which evaluation of performance and activity is done by making a comparison between actual and standard costs, is Standard Costing.	Budgetary Control is the system in which budgets are prepared and continuous comparisons are made between the actual and budgeted figures to achieve the desired result.
Basis	Determined on the basis of data related to production.	Budgets are prepared on the basis of management's plans.
Range	It is limited to cost details.	It includes cost and financial data.
Concept	Unit Concept	Total Concept
Scope	Narrow	Wide
Reporting of Variances	Yes	No
Effect of temporary changes in conditions	The short term changes will not influence the standard costs.	The short term changes will be shown in the budgeted costs.
Comparison	Actual costs and standard cost of actual output	Actual figures and budgeted figures
Applicability	Manufacturing concerns	All business concerns

Definition of Standard Costing

Standard Costing is a cost accounting technique, which helps to measure the performance of material, labor & overhead and report the variances, to take corrective actions. The variances are being analyzed in detail and reported by comparing the actual costs with the standard cost for actual output along with determining the reasons for the same. There are two types of variances i.e. favorable (actual cost is less than the standard cost) and adverse (actual costs exceed standard costs).

The following steps are taken, in the process of Standard Costing:

• Fixing Standards
• Determining Actual Costs
• Comparison between actual and standard figures
• Variance analysis and reporting
• Taking corrective action for the disposition of variances

Standard Costing is a tool for ascertaining and controlling the costs. With this technique, the organization can make best possible use of the resources. In addition to this, the management can keep a check on the organizational activities by assessing the deviations, i.e. analyzing the difference between actual performance and the standard performance.

Definition of Budgetary Control

By Budgetary Control we mean, a management function in which an organization’s activities are directed and regulated in such a way reach the desired objectives. It is a control technique, in which the operations are planned in advance, and then they are compared with the actual results to know whether the expected results are achieved or not. The following are the major characteristics of this system:

• The budgets are designed in accordance with the policy requirements.
• Constant comparisons are made between the actual output and the budgeted targets to review the performance.
• Revisions are made if in case the existing conditions are changed.
• Appropriate actions are taken if the expected results are not achieved.

Here, budget refers to a written financial statement expressed in monetary terms prepared in advance for future periods, containing the details about the economic activities of the business organization.

The Budgetary Control system facilitates the management to fix the responsibilities and coordinate the activities to achieve the desired results. It helps the management to measure the performance of the organization as a whole. Moreover, it helps in the formulation of future policies by reviewing current trends.

Conclusion

Both Standard Costing and Budgetary Control are the techniques which provide a yardstick to judge the performance and analyze disagreement of the actual and estimated figures. Budgetary Control makes side by side comparisons, and that is why periodic revisions are made in the budgets, and that is why there is no need for reporting the variances, which is absent in Standard costing.