What is the Difference Between Controllable and Uncontrollable Cost?
🆚 Go to Comparative Table 🆚The difference between controllable and uncontrollable costs lies in the ability of a manager or executive to control or change the cost. Here are the main distinctions between the two:
Controllable Costs:
- These are costs that can be changed in accordance with the decisions and needs of the management.
- They can be altered based on a business decision or need.
- Examples include direct labor, direct materials, donations, training costs, bonuses, subscriptions, overhead costs, marketing budgets, and labor costs.
- Controllable costs can be adjusted in the short term.
Uncontrollable Costs:
- These are costs that cannot be modified in accordance with the business decisions or needs.
- They cannot be altered based on a personal business decision or need.
- Examples include depreciation, insurance, administrative overhead allocated, rent allocated, and costs that are beyond the sphere of influence of a specified manager.
- Uncontrollable costs can be renegotiated in the long run.
Differentiating between controllable and uncontrollable costs is crucial for efficient management, effective cost monitoring, and incentive packages in certain industries. By focusing on controllable costs, management can proactively and more quickly react to the information that financial statements provide, allowing them to make informed decisions and maintain profitability.
Comparative Table: Controllable vs Uncontrollable Cost
The main difference between controllable and uncontrollable costs lies in the ability to change or modify these costs based on business decisions or needs. Here is a table comparing the two types of costs:
| Characteristics | Controllable Cost | Uncontrollable Cost |
|---|---|---|
| Definition | Costs that can be changed in accordance with the decisions and needs of the business. | Costs that cannot be modified in accordance with the business. |
| Time Span | Can be adjusted in the short term. | Can be renegotiated in the long run. |
| Examples | Direct labor, direct materials, donations, training costs, bonuses, subscriptions, overhead costs. | Rentals, parking fees, electricity bills, insurance, depreciation, administrative overhead allocated. |
Controllable costs are variable expenses that can change depending on the business's preferences or needs and can be traced back to a specific item, division, or operation of the company. These costs can be influenced by managers and can be either increased or decreased based on their decisions.
On the other hand, uncontrollable costs are expenses that cannot be easily and effectively controlled by the responsible party. These costs are beyond the sphere of influence of a specified manager due to various factors, such as external market conditions or long-term contracts. Uncontrollable costs can be altered in the long run, but not in the short term.
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