Estimate, Budget and Standard – Are they same?
Estimates are prepared in advance by experts on the subject, covering both financial and non-financial aspects. If these estimates are thoroughly analyzed and approved by management for support, they become known as the Budget. Our professors used to say that Contracts are Agreements plus approval by the Court of law. Similarly, Budgets are Estimates plus management approval.
The need for standards is to set a norm in an industry to determine the direct material, time taken, and cost incurred for a product or service. While actual results are compared with budgets, it's better to revise the budget according to actual results before making a comparison. Standard costing is used in all industries, including by the government and audit experts, to identify any mismatches or abnormalities.
Therefore, all of these are tools used for performance evaluation and improvement.
By CA L.Muralidharan and CPA L.Mukundan
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