Q.3 How will you differentiate between standard costing and budgetary control?
Difference between Standard costing and Budgetary Control:
Although standard costing and budgetary control both techniques are helpful in improving efficiency of employees, determination of this responsibility and controlling in cost of production. Following are the main differences between the standard costing and budgetary control:
1. Scope. Standard costing technique is used only for those aspects which are related to production and its cost, but budgetary control technique is not limited to production. In budgetary control, various other budgets are also prepared and analyzed which are not related to production such as cash budget.
2. Data information used. The data information, which are used in standard costing, are estimated costs of different elements of costs which are collected on the basis of technical and experts advise, while data which are used in budgetary control are generally of immediate past in which proper adjustments are made keeping in mind possible future changes expected during the budget period.
3. Period. Standards are not fixed for certain period, they are used relatively for a long time. Standards are not changed every time. They are revised only when major changes have been taken place in production process, technology or other matters, whereas budgets are prepared for a specific period, may be monthly, quarterly, half-yearly or yearly.
4. Proposed action. Standard cost determines the target of activities, while budgets disclose the possible maximum limits of the activities.
5. Coverage. In standard costing, standard costs and actual costs are compared, variances are calculated and analyzed, while in budgetary control such exercises are not done.
6. Partial use. Budgetary control may be exercised partially for a few activities. It is not necessary always to prepare budgets for all the activities. While standard costing is not used partially.
7. Dependent. Budgetary control is possible to use even when standard costing is not followed. But when standard costing is adopted, budgetary control has to be exercised. Thus budgetary control becomes the basis for standard costing is not a basis of budgetary control.
8. Application. Standard costing is suitable only for those industries where production is of uniformal and standard quality. While budgetary control may be used even in those industries where production is not of repeated nature.