Businesses require a lot of decisions to make. And it’s vital to know what factors to consider when making an important decision. The understanding of the cost classifications is also very necessary.
There are two classifications of costs: Controllable costs and Uncontrollable costs. They both have different meanings and different features that affect much in taking any business-related decisions.
Controllable vs Uncontrollable Cost
The difference between Controllable costs and Uncrontroallbe costs is that Controllable costs can be altered by the decision making authority, but Uncontrollable costs do not tend to change and are altered by any decision making authorities. Controllable is done for short-term profitability while Uncontrollable costs are not at all altered or monitored too.
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Controllable costs are the cost that is controlled by the management decisions and are altered in a shorter period. They are increased or decisions very quickly and can be monitored frequently.
The key driving force behind controlling the costs is the short-term management decisions. Generally, managers are responsible for these decisions to make and are appraised based on that.
Uncontrollable costs are the costs that are not controlled by any decision-making authority and also not monitored or altered until it’s needed.
They are practically unavoidable and occur due to several reasons such as Contractual obligations, mandatory government levies, or fixed-term commitments. They are fixed in nature.
|Parameters of Comparison||Controllable Cost||Uncontrollable Cost|
|Definition||It refers to the cost which is under the control of a manager or that can be further altered on the basis of decisions of the business.||It is the opposite of Controllable costs and it cannot be altered by any decision as they are fixed.|
|Time period||They can be altered for a shorter period of time.||They can be altered for a longer period of time.|
|Types||The three types of controllable costs are Variable cost, incremental cost, and stepped fixed cost||Fixed costs and Regulated costs are the types of Uncontrollable costs.|
|Decision-making authority||Managers are the decision-making authorities of controllable costs.||The decision-making authority is low in case of uncontrollable costs.|
|Examples||Some examples of Controllable costs are training costs, direct labor, direct materials, etc.||Some examples of Uncontrollable costs are depreciation, insurance, rent allocated, etc.|
What is Controllable Cost?
Controllable Costs are the costs that are not fixed and can be increased or decreased in case that is needed when the business demands. This can be done in the short term.
It depends on the decision-making authorities and the nature of the costs for how they can be controlled. Generally, Senior and Middle management members are of higher decision-making authorities that can take decisions and control the costs.
Managers take the responsibility of altering the costs according to the business, and the operational staff is needed to work on the desired cost target.
There are three types of Controllable costs and are Variable costs, Stepped costs, and Incremental costs.
There exists a direct relationship between the costs and the product, department, or function.
Some of the examples of Controllable costs are donations, training costs, bonuses, subscriptions and sues, and overhead costs, etc. These costs tend to be variable, and they change a fair quickly.
Thye is also controlled and monitored frequently.
What is Uncontrollable Cost?
Uncontrollable cost is there for a longer duration of time and is somehow fixed. It means they are not altered or influenced by any personal business decision or need.
These costs are allocated to several managements, and various departments by the top management exist.
Some common examples of Uncontrollable costs are Rent, licenses, Insurances, depreciation, etc.
There are two types of Uncontrollable costs, and they are 1) Fixed costs and 2) Regulated costs. There are certain actions taken on the Uncontrollable costs such as:
- They can be changed in the long-term
- They can be fixed for some time
- They can only be adjusted by owners and executives.
The driving force behind Uncontrollable costs is the mandatory government levies, contractual obligations, or any long-term fixed commitments.
Being inevitable, these costs are only visited when the change is required, and nether they are monitored frequently, unlike the Controllable costs.
Main Differences Between Controllable and Uncontrollable Cost
- Controllable costs are subject to management decisions, and they are for a shorter period, whereas Uncontrollable costs are not subject to any of the decisions and cannot be altered according to the needs and are there for a longer period of time.
- Controllable costs are not fixed and can be increased or decreased frequency, whereas Uncontrollable costs tend to be fixed and unlikely to be changed over a shorter period.
- Controllable costs are monitored frequently and also controlled at various steps, whereas Uncontrollable costs are not visited until the change is required and also not frequently monitored.
- For improving the short-term portability, Controllable costs can be altered, whereas It will not happen in the case of Uncontrollable costs.
- For altering, controlling, and managing the controllable costs, the managers are appraised, but In the case of Uncontrollable costs, there are not generally appraised as they are not a part of decision-making authority.
- Some examples of Controllable costs are training costs, direct labor, direct materials, etc., whereas Some examples of Uncontrollable costs are depreciation, insurance, rent allocated, etc.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.