Difference between Standard Costing and

Budgetary Control

Standard Costing

Standard Costing is an accounting technique that helps to calculate material

performance, labor, overheads and their variances, to take corrective action.
The variances are then analyzed in depth and re-established by comparing the
actual costs with the standard average production costs along with the
explanations for the same. There are two types of variances: favorable, when
the actual cost is less than the standard cost and adverse, actual costs exceed
standard costs.

These are the following steps taken to carry out Standard Costing:

 Setting Standards
 Determining Actual Costs
 Comparing between actual and standard figures
 Variance Analysis and Reporting
 Taking corrective action for the disposition of variances

Standard costing is an instrument used to assess and manage costs. With this
technique, the organization can make the efficient use of available resources
possible. Additionally, by assessing the deviations, i.e. analyzing the difference
between actual performance and standard performance, the management can
keep a check on the organizational activities.

Budgetary Control

Budgetary Control is a management function that directs and regulates the

activities of an organization in such a way that they reach the desired
objectives. It is a methodological approach in which the operations are
planned in advance and then compared to the actual results to determine
whether or not the expected results are achieved. The following are the major
characteristics of this system:

 The budgets are adjusted to policy criteria.

  Constant comparisons to check the results are made between the actual
output and the budgeted targets.
 Revisions are made if the existing circumstances change.
 Where the desired outcomes are not obtained, necessary action will be
taken.

Here, the word budget means a written financial statement prepared in

advance for future periods that is expressed in monetary terms, containing
details of the organization’s financial activities.

The system of Budgetary Control allows management to correct the

obligations and organize the operations to produce the desired results. It helps
managers measure the overall performance of the organization. In addition, it
also assists management by reviewing current trends in formulating future
policies.

Similarity between Standard Costing and Budgetary Control

 Fixed standards are used for both budgetary and standard cost controls.
 Both strategies are targeted at pre-production cost determinations.
 Both strategies presume that costs can be managed along fixed
accountability lines.
 In the case of both the techniques, actual are compared with the pre-
determined standards.
 Periodic reports of comparative costs for both are needed.
 Both the techniques are intended to take corrective action in the case of
adverse variances.
 Both aim to boost efficiency in performance.

Key Differences between Standard Costing and Budgetary Control

The following are the major differences between standard costing and
budgetary control:

 Standard costing is a cost accounting method that calculates efficiency

by contrasting actual and standard costs. Budgetary Control is a control
system where actual and budgeted results are constantly compared in
order to achieve the desired outcome.
 In Standard Costing, the distinction is made between actual cost and
expected production at standard cost. At the other hand, the contrast
 between the actual and the budgeted output is made in Budgetary
Control.
 Standard costing is limited to, cost data, but budgetary control is linked
to company's both cost concept and economic data.
 Standard Costing has a narrow focus, restricted to production costs
only, while Budgetary Control has a comparatively broader view as it
covers all of the organization's operations.
 In Standard Costing variances are disclosed and recorded in budgetary
control, but, because the control is simultaneously exercised, the
variances are not disclosed.
 Due to short-term changes in the conditions, standard costs do not
change but budgeted costs can change.
 Standard Costing is like a subset of Budgetary Control.
 Standard Costing applies to manufacturing concerns. In contrast to
Budgetary Control, this applies to all the organizations.

Conclusion

Both Standard Costing and Budgetary Control are the methods that provide a
reference point for assessing performance and analyzing discrepancy between
actual and estimated figures.

But as Budgetary Control makes side-by side comparisons, the regular

changes are made in the budgets, and so it eliminates the need to mention the
variances. And this is what majorly missing from Standard Costing.