Question

The difference between a budget and a standard is that

1)a budget expresses what costs were, while a standard expresses what costs should be.
2)a budget expresses management's plans, while a standard reflects what actually happened.
3)a budget expresses a total amount, while a standard expresses a unit amount.
4)standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

Answer 1

A budget is a financial plan expressing management's expected revenues and expenses, whereas a standard is a unit cost benchmark used for controlling and assessing performance. The correct distinction option 3) is that a budget expresses a total amount, while a standard expresses a unit amount.

Step-by-step explanation:

The difference between a budget and a standard is often misunderstood. A budget represents management's plans for the future, outlining expected revenues and expenditures, and serves as a financial representation of the company's goals. It expresses a total amount and has both tactical and strategic implications.

On the other hand, a standard refers to a predetermined benchmark that reflects what costs should be on a per-unit basis. Standards are used for cost control by comparing actual costs with what should have been incurred, making them crucial for variance analysis.

Option 3 in the student's question is correct: a budget expresses a total amount, while a standard expresses a unit amount. Budgets and standards are both integral parts of the cost accounting system, guiding decision-making and performance assessment.