Controllable cost definition

What is a Controllable Cost?

Controllable costs are those costs that can be altered in the short term. More specifically, a cost is considered to be controllable if the decision to incur it resides with one person. If the decision instead involves a number of individuals, then a cost is not controllable from the perspective of any one individual. Also, if a cost is imposed on an organization by a third party (such as taxes), this cost is not considered to be controllable.

A cost could be uncontrollable at a low level of an organization, because a front-line manager is not authorized to incur or stop the cost. However, a more senior manager might be given this authority . Thus, it is possible for cost to be controllable at the higher levels of an organization and uncontrollable lower down. For example, the decision to pay for employee training may reside with a vice president and not with a local department manager, so the cost is controllable for the vice president, but not for the department manager.

Controllable Costs vs. Fixed Costs

A controllable costs can be altered in the short term, while a fixed cost is the reverse - it can only be altered over a long period of time. Examples of fixed costs are rent and insurance, which typically involve long-term commitments to pay fixed amounts on a regular basis.

Examples of Controllable Costs

There are many examples of controllable costs, including the following:

Advertising . A business can generally elect to stop advertising over the short term without experiencing a massive drop in sales. However, it is usually needed over the long term in order to maintain brand awareness.
Bonuses . Bonus payments can usually be curtailed or delayed, especially when the bonuses are tied to poor performance that is causing the cash balance to decline.
Donations . One of the easiest controllable expenses to curtail is donations, since it has no demonstrable impact on the business.
Dues and subscriptions . It is generally fairly easy to cut back on dues and subscriptions without impeding company operations.
Employee compensation . Perhaps the largest controllable cost is employee compensation, especially when there are many support staff not directly involved in the generation of sales.
Office supplies . It may be possible to control office supplies to a modest degree, though it usually varies with the level of administrative staffing.
Training . Training can usually be curtailed for extended periods of time, though doing so can reduce the level of employee expertise.