Q. 7. What Are the Similarities and Differences between Budgeting and Standard Costing?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 16, 2021

Similarities Between Standard Costing and Budgetary Costing

Basis of Difference Standard Costing Budgetary Costing
Predetermined
cost
Standard costs are predetermined costs fixed according to estimates. Budgetary costs are also estimated costs.
Advance cost Standard costs are estimated in advance and compared to actual costs. Budgetary costs are also estimated in advance and compared to actual costs.
Both aim at
cost control
Standard costs are designed to control costs and improve efficiency. Budgetary costing also seeks to promote cost control and maximize employee efficiency.
Cost
comparison
Standard costs are designed well in advance and compared to actual costs. These advanced estimated costs are compared to actual costs.
Reporting Standard costs are periodically reported to top management. Budgetary costs are also reported to management periodically.
Corrective
action
Standard costing lays stress on identifying adverse variances and corrective actions are taken. Budgetary control lays stress on identifying 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 experience.
Technique Standard costs are based on technical estimates. Budgetary costs are based on historical data and adjusted to the future.
Scope The standards are set for elements of cost. Budgets are prepared for every business activity.
Limited use Standard costs can be used for estimation or forecasting. Budgets are used for men, materials, and money.
Conditions Standard costs are used in ideal conditions or situations. Budgets are made and used in diverse conditions and situations.
Per unit Standard costs can be calculated per unit. Budgetary costs cannot be calculated on a per-unit basis.
Nature Standards are set only for expenditure. Budgets are compiled for both income and expenditure.
Coverage Standard cost is not comprehensive (i.e., it is limited only to cost operations). Budgetary cost coverage is significantly greater than standard cost coverage.
Parts Standard costs cannot be specified in parts. The budget can be in parts (only the cash budget).

Got questions?

We hope this article provided you useful inputs in the subject of budgeting and standard costing. To accommodate any more of your questions, please feel free to contact a financial advisor in Middleburg, VA or if you live outside the area, check out our financial advisor page.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, 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.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

2 thoughts 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
    • You’re welcome! Let us know what other kinds of information you’d like to see and we’ll try to add it in the future. Best of luck!

      Reply

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