Businesses require a lot of decisions to make. And it’s vital to know what factors to consider when making an important decision. An 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 features that affect much in business decisions.
Key Takeaways
- Controllable costs are expenses an organization can influence or manage, while uncontrollable costs are expenses beyond an organization’s control.
- Examples of controllable costs include labor costs, marketing expenses, and office supplies, while examples of uncontrollable costs include taxes, rent, and inflation.
- Controllable costs are closely monitored to improve profitability, while uncontrollable costs are managed through strategic planning and risk management.
Controllable vs Uncontrollable Cost
Controllable costs are expenses that a manager or business can influence through their decisions and actions. Uncontrollable costs are expenses that a manager or business has little or no control over and are influenced by external factors such as economic trends or government regulations.
Controllable costs are the cost that is controlled by 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 costs is short-term management decisions. Generally, managers are responsible for these decisions to make and are appraised based on that.
Uncontrollable costs are not controlled by any decision-making authority and are 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.
Comparison Table
| 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 controlling them. 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: Variable, Stepped, and Incremental costs.
A direct relationship exists between the costs and the product, department, or function.
Some examples of Controllable costs are donations, training costs, bonuses, subscriptions and sues, 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 management, and various departments by the top management exist.
Some common examples of Uncontrollable costs are Rent, licenses, Insurance, 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
- Owners and executives can only adjust them.
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 neither are they frequently monitored, 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 frequently, 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 are also not frequently monitored.
- Controllable costs can be altered to improve short-term portability, 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 appraised as they are not a part of the decision-making authority.
- Some examples of Controllable costs are training costs, direct labour, direct materials, etc., whereas Some examples of Uncontrollable costs are depreciation, insurance, rent allocated, etc.
- https://www.sciencedirect.com/science/article/pii/0022103171900709
- https://onlinelibrary.wiley.com/doi/abs/10.1002/jtr.2025
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Interesting article, but the lengthy explanations could have been made more concise.
The article clearly explains the differences and examples of controllable and uncontrollable costs. It is valuable information for business students and managers, and the sources used are useful as well. With today’s economy, this knowledge is essential.
It is well-written, however, the definitions could have been more clear. The author could have used more practical examples instead of just a list of types.
I concur with you and Samantha53. It’s important to have content with practical examples as it helps to have a clearer understanding of the concepts.
Good explanations and examples. The article is informative, but at times, it felt too long-winded.
Such a useful article. The examples given make it easier to understand the differences in costs.
This is an amazing article, full of useful and practical information. The definitions are clear, and the examples are spot on.
I second your opinion and appreciate the clarity with which the article is written.
This article is an excellent guide to the classification of costs. It is enlightening and valuable, but it would have been better if there were more practical examples.