Controllable costs

Definition

Controllable costs are expenses that a manager has the power to influence or change directly. These costs are critical for performance evaluation in responsibility centers as they reflect managerial effectiveness.

5 Must Know Facts For Your Next Test

1. Controllable costs are typically variable, such as direct materials and labor.
2. The distinction between controllable and uncontrollable costs helps in assigning accountability within responsibility centers.
3. These costs can vary depending on the level of decentralization in an organization.
4. Managers are often evaluated based on their ability to manage controllable costs effectively.
5. In budgeting, identifying controllable costs is essential for accurate variance analysis.

Review Questions

• What are controllable costs and why are they important for performance evaluation?
• How do controllable costs differ from uncontrollable costs?
• Why is it crucial to identify controllable costs within responsibility centers?

Related terms

Responsibility Center: A segment of an organization where a manager is responsible for specific activities and outcomes.

Uncontrollable Costs: Expenses that cannot be influenced or changed by a manager's decisions within a given period.

Variance Analysis: The process of comparing actual results to budgeted figures to identify deviations and their causes.