Cost is an important factor in any business. There are two types of costs: controllable and uncontrollable. Controllable costs are those that a company can directly influence, while uncontrollable costs are not within the company’s control. It is important to understand the difference between these two types of costs, as they can have a significant impact on a business’ bottom line.
What is Controllable Cost?
Controllable cost is a term used in business to refer to costs that can be managed by company management through their decision making. These costs are typically direct costs associated with the production of goods or services and therefore can be influenced by price changes, volume changes, or mix changes. For example, if a company wants to reduce its controllable costs, it could choose to source cheaper materials, change its production process, or sell its products at a lower price. While controllable costs are important to manage, it is also important to remember that some costs, such as fixed costs, are not controllable and must be managed in other ways.
What is Uncontrollable Cost?
Uncontrollable cost is a term used in business to describe expenses that cannot be controlled or managed by the company. These costs are often fixed, meaning they do not fluctuate with production levels or sales. Typically, uncontrollable costs include things like rent, utilities, insurance, and taxes. While uncontrollable costs may seem like a burden, they are actually essential to the operation of any business. Without these fixed costs, companies would be unable to maintain their facilities or insure their employees.
Difference between Controllable Cost and Uncontrollable Cost
In business, there are controllable and uncontrollable costs. Controllable costs are those that can be managed by the company within the parameters of the situation. Uncontrollable costs are those that are out of the company’s control. For example, raw materials cost may be controllable if the company has a contract with a supplier, but it would be uncontrollable if the price of raw materials on the open market increased. Labor cost may be controllable if the company has a union contract, but it would be uncontrollable if there was a shortage of skilled labor in the area. Overhead costs are generally considered to be controllable, as they are within the company’s control to manage. Operating expenses, such as marketing, admin, and utilities, are also controllable.
Controllable and uncontrollable costs are important to understand when running a business. By understanding the difference, business owners can make better decisions about their budget and operations. Uncontrollable costs cannot be changed, so it is important to find ways to reduce them. Controllable costs can be reduced by making changes in how the company operates. It is also important to remember that not all controllable costs are within our direct control.