What Is The Difference Between Budget And Standard Cost?

• Budget

A budget is usually the amount of money that an organization or department has to cover projected costs, expenses and revenues. It is the sum total of what is available to spend and so needs to be spread over all expenditures.

• Standard cost

A standard cost (sometimes referred to quite simply as a standard) typically makes reference to the projected figures for a unit. This can be the unit price of a product or of input, such as factory overheads and materials; or for each unit of the output produced.

• Example

As an example of this, imagine a manufacturer has a budget for both the manufacture of the units produced in his factory, and for the factory overheads of $2,000,000. This figure has been estimated to cover the production of 200,000 duplicated units, which means that the standard cost of manufacture overheads is now $20 per unit ($2,000,000 / 200,000).

This is easy to work out because the end products have all been identical but when they are not, other methods have to be employed to calculate the standard cost.

In this case the $2,000,000 budget may be divided into how many machine hours it will take to produce the units. If this is 50,000 machine hours, for example, the standard cost of the overhead for manufacturing will be $40 for every machine hour ($2,000,000 divided by 50,000 machine hours).

This example can be applied to many different instances; simply replace the figures here for the figures that apply to your own circumstances to be able to calculate what the standard cost for something is.

Standard Costs: The cost of an item which is necessary for the "production" ie goods or service which one intends on producing.  In todays world the best price to use is the most expensive/costly on the market at the time.

Budgeted cost:  This amount should really be "clubbed" into what is recorded as the contingency ie the total budgeted cost plus 10% to compensate for increase in prices by the time the "product" is manufactured.  The 10% should reflect the inflation index but greed and doubt really makes that figure uncertain.

Budgets are not mandates but what is expected and budget control warns when a budget item is over cost or reaching that point and also due dates. Standard costs are costs that it takes to operate regardless of what is done. Such as Rent, it is the same unless there is an increase.