A “standard budget” is a list of goods and services that a family of a specified size and composition would need to live at a designated level of well-being, together with the costs of those
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...
.
Considerable work on standard budgets has been done in the United States and other countries in recent years, mostly by non-government analysts. Budgets have not been used to develop official
poverty line
The poverty threshold, poverty limit, poverty line or breadline is the minimum level of income deemed adequate in a particular country. The poverty line is usually calculated by estimating the total cost of one year's worth of necessities for ...
s, and in most cases have not been used to calculate the size of a nation’s
low-income
Poverty is the state of having few material possessions or little
population.
The main way a standard budget is established is by using historical information. If standards are set using historical information, they may become out of date quickly. A standard budget is a vehicle for
variance
In probability theory and statistics, variance is the expectation of the squared deviation of a random variable from its population mean or sample mean. Variance is a measure of dispersion, meaning it is a measure of how far a set of numbe ...
. It is commonly derived from estimates on future
cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in whic ...
s that have fixed and variable cost components.
Standard budgets present information at only one level of activity, and do not provide information on how the variable portion of the costs would affect the
budget
A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environme ...
. When used in
variance analysis
Analysis of variance (ANOVA) is a collection of statistical models and their associated estimation procedures (such as the "variation" among and between groups) used to analyze the differences among means. ANOVA was developed by the statisticia ...
, this can lead to unfavorable variances being falsely identified.