What is the difference between a budget and a standard?
A budget usually refers to a department‘s or a company’s projected revenues, costs, or expenses. A standard usually refers to a projected amount per unit of product, per unit of input (such as direct materials, factory overhead), or per unit of output.
For example, a manufacturer will have budgets for its manufacturing or factory overhead departments. Let’s assume that the budgeted manufacturing overhead for the upcoming year is expected to be $1,000,000 in order to produce the expected 100,000 identical units of product. The standard cost of manufacturing overhead per unit of product is $10 ($1,000,000 divided by 100,000 units). When the products are not identical, the $1,000,000 of manufacturing overhead might be divided by the expected number of machine hours required to manufacture the units of product. Assuming it will take 50,000 machine hours, the standard cost of the manufacturing overhead will be $20 per machine hour ($1,000,000 divided by 50,000 machine hours).
Learn more about Standard Costs.
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Can you say more about how often standards are evaluated? Are standards calculated on a quarterly basis? I’m interested in the state of the art, which I understand most companies may not practice.
thanks, this answer really helped me in my assignment of Cost Accounting.
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Budget is a managment tool to forecast expenses for planning purposes, and in order to keep tract of the actual expenditures. Standards are benchmarks or targets set for the production of a certain output, like standard manhour, standard material consumption, standard electricity rate, standard machine hour, and etc.
Standard is ideal, which is impossible to achieve but the budget is normal standard and can be achieve.
I disagree. Standards should be achievable and should tie into the budget.