Page 150 - Finance for Non-Financial Managers

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Cost Accounting
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costs are controllable without consequences, only that they’re
controllable, which means a manager can make and implement
a conscious decision to reduce the expenditure in these areas.
Even though the company may lose the benefits to be gained
from incurring these costs, they’re still controllable because
managers can lower or eliminate them.
Uncontrollable costs, by contrast, cannot in general be con-
trolled. Examples that readily come to mind include income
taxes, depreciation, and rental or lease payments.
Now, you might just notice a parallel with variable and fixed
costs. If it didn’t come to you immediately, let me point it out
here: All costs are uncontrollable in the short term; all costs are
controllable in the long term.
This is a conceptual truth that will be by and large useless in
the accounting department or in the preparation of the budget.
But in concept it’s important to realize that you’re not captive to
any costs charged to your department or unit, as long as you
are prepared to manage these costs actively and as long as you
can accept or ameliorate the consequences of removing those
costs, which may include loss of their attendant benefits.
In the production department of a company, controllable
costs are those for which managers are held accountable. Cost
estimates should be built around the realization that some costs
are going to be what they’re going to be, regardless of manage-
ment efforts. If your department has a large drill press on its
floor, you’ll likely be charged for the depreciation of that
machine as long as you’re using it. You can’t control that cost if
you need the drill press to do your job. But by proper preventive
maintenance, you can control the repair costs and downtime of
that machine—and that’s your responsibility if you are running
the department.
Stepping outside the manufacturing department for a
moment, the concept of controllable and uncontrollable costs
applies equally throughout a company’s organization structure.
Lease payments on property are uncontrollable as long as the
lease runs. Once the lease runs out, those costs are again con-