Controllable and uncontrollable costs are classifications used in cost accounting to distinguish between costs that can be influenced or controlled by a manager and costs that cannot be directly controlled.
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Here’s a brief explanation of each:
- Controllable Costs:
- Controllable costs are costs that can be influenced or controlled by a manager within a certain level of authority or responsibility.
- These costs are typically within the manager’s discretion to change through managerial decisions and actions.
- Managers have the ability to directly affect controllable costs by making decisions such as budgeting, setting performance targets, and implementing cost-saving measures.
- Examples of controllable costs include raw material costs, labor costs for employees under the manager’s supervision, and discretionary expenses within a department’s budget.
- Uncontrollable Costs:
- Uncontrollable costs are costs that cannot be directly influenced or controlled by a manager, regardless of their decisions or actions.
- These costs are typically determined by factors outside the manager’s authority, such as market conditions, economic factors, or corporate policies.
- Managers do not have the ability to alter or change uncontrollable costs through their managerial decisions.
- Examples of uncontrollable costs include uncontrollable market prices for raw materials, changes in government regulations affecting costs, and unavoidable changes in overhead costs set at the corporate level.
In summary, controllable costs are costs that managers can influence or control through their decisions and actions within their area of responsibility, while uncontrollable costs are costs that are determined by external factors beyond the manager’s control. Understanding the distinction between these types of costs is essential for effective cost management and decision-making within an organization.