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Difference between Controllable and Uncontrollable Cost
Cost management and control is the most important aspect of business management since it directly affects a company's ability to stay in business and earn money. The first stage in cost management is to examine each individual expenditure and justify its need and continued importance.
Expenditures are a necessary evil in any enterprise, so there are both predictable and uncontrollable costs associated with running any business, but a firm may prioritize its spending based on which type of expense it is. Business owners and managers benefit from differentiating between controllable and uncontrollable expenditures for better management and cost monitoring.
What is Controllable Cost?
It's a variable expense that might change depending on the business's preferences or needs. These costs may be traced back to a specific item, division, or operation of the company. Some examples of direct costs include salaries, materials, donations, tuition, bonuses, memberships, legal fees, and settlements. Such costs are incurred in a planned and phased manner incrementally so it’s easy for management to set targets accordingly and manage the outgoing money flow against the “incoming” targeted revenue.
What is Uncontrollable Cost?
This is an expense that will always exist, no matter what the needs of the company are. Management allocates expenses throughout the many departments and units that make up the business. Depreciation, insurance, administrative overhead, and rent are just a few examples of the kind of expenses that may be split. Such costs are sometimes independent of the nature of work going inside an establishment.
Similarities: Controllable and Uncontrollable Cost
Both are essential expenditures for a business; however, controllable costs are incurred only when a company decides to expand or initiate a different assignment. For example, if a phone manufacturing company plans on starting accessories production also, it will have to spend in research and development, surveys, resources, acquisition, hiring of talent, etc. which all get listed under controllable costs. Incontrollable costs, on the other hand, are incurred regardless of a company’s operations like say, rentals, parking fees, electricity bills, etc. which will stay no matter whatever the company works on.
Differences: Controllable and Uncontrollable Cost
The following table highlights how Controllable costs are different from Uncontrollable costs −
| Characteristics | Controllable Cost | Uncontrollable Cost |
|---|---|---|
| Definition | When costs can be changed in accordance with the decisions and the needs of the cost, they are considered to be controllable. | "Uncontrollable cost" refers to a cost that cannot be modified in accordance with the business owner's preferences or needs. |
| Time Span | In the short term, adjustments can be made to controllable costs. | Uncontrollable costs can be renegotiated in the long run. |
| Examples | Controllable costs purview include those for direct labor, direct supplies, donations, training, bonuses, memberships, dues, and overhead. Overhead is another cost that may be managed. | Examples of uncontrollable costs include rent, utilities, a share of administrative overhead, and insurance fees. |
Conclusion
Operating a business has inevitable costs. However, if the costs aren't controlled effectively, it might be disastrous for the business. Knowing the difference between controllable and uncontrollable costs is crucial for business owners and employees, as it allows them to make better decisions for the organization.
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