Page 219 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes

Notes Difference between Standard Costing and Budgetary Control

Standard Costing Budgetary Control
(i) It is revealed with the control of It is concerned with the operation of the
expenses and hence it is more intensive. business as a whole and hence it is more
extensive.
(ii) Standard costs are based on technical Budgets are based on past actuals,
assessments. adjusted to future trends.
(iii) To establish standard costs, some form of Budgetary control can be applied
budgeting is essential as there is the need to even without the help of standard
forecast the level of output and prescribed set costing.
of working conditions in the periods in which
the standard costs are to be used.
(iv) Standards are set mainly for production and Budgets are compiled for all items of
production expenses. income and expenditure.
(v) Standard cost is the projection of cost Budget is a projection of financial
accounts. accounts.
(vi) Standards set up targets that are to be Budgets set up maximum limits of
attained by actual performance. expenses above which the actual
expenditure should not normally exceed.
(vii) In standard costing, variances are analysed In budgetary control, variances are not
in detail according to their originating related through the related accounts but
causes. It reveals variances through different are revealed in total.
accounts, such as, material price
variance, usage variance, etc.
(viii) Standard costs do not tell what the costs Budgets are anticipated or expected costs
are expected to be, but rather what the costs meant to be used for forecasting
should be under specific conditions of requirements of material, labour, cash,
production performance and as such cannot etc.
be used for the purpose of forecasting.
(ix) Standard costs are used in various It aims in policy determination, co-
management decisions, price fixing, value ordination of activities in different
analysis, valuation of closing stock, etc. divisions and delegation of authority.

10.3 Estimated Costing

Standard costs and estimated costs are predetermined costs, but their objectives are different.
Important points of difference between the two are as follows:

Standard Cost Estimated Cost
(i) Standard cost can be applied in a business Estimated costs can be used in any business
operating under standard costing system. which is running under historical costing
system.
(ii) Standards are meant for controlling future Estimates are prepared mainly for price
performances. fixing purposes.
(iii) Standard costs are determined on a Estimated costs are calculated on the basis of
scientific basis keeping in view certain past performance adjusted in the light of
factors and conditions of efficiency. anticipated changes in the future.
Contd...
(iv) Standard costs are used as a regular system The use of estimated cost is as statistical
of accounts from which variances are data only.
found out.
(v) Standard costs are to be fixed in respect of Estimated costs can be ascertained for a part of
every element of cost and therefore, they the business and also for a particular purpose.
214 LOVELY PROFESSIONAL UNIVERSITY
incorporate whole of the manufacturing
process.