Controllable and Uncontrollable Costs, Imputed Costs, Differential, Incremental or Decremental Costs
"Controllable costs are costs which can be influenced by the action of a specified member of an organization. For example, the foreman of a production department can control the utilization of power or raw materials in his department and these are, therefore, controllable costs as far as he is concerned.
Uncontrollable costs are costs which cannot be influenced by the action of a specified member of an undertaking. For example, the foreman of a production department can control the wastage of power in his department; however, he cannot control the power which is being wasted in the power house itself resulting in higher cost per unit of power to him. Similarly, he cannot control the increase in the cost of materials consumed to his department if the purchase department, which is the supplying department, buys the materials at higher prices due to its own inefficiency. Such costs are controllable at a particular level of management while they are uncontrollable at some other level of management.
The difference between controllable and uncontrollable costs is of a particular significance to the management and the executive should be held responsible only for those costs which are within his or her control and not for costs which are beyond his control.
Imputed or hypothetical costs: These are costs which do not involve cash outlay and they are not included in cost accounts; however, are important for making management decisions. For example, interest on capital is ignored in cost accounting through it is considered in financial accounting and if two projects require unequal outlays of cash, the management must take into consideration interest on capital to judge the relative profitability of the projects.
Differential, incremental or decremental costs: The difference in total costs between two alternatives is termed as differential cost. In case the choice of an alternative results in increase in the total cost, such increased costs are known as
Uncontrollable costs are costs which cannot be influenced by the action of a specified member of an undertaking. For example, the foreman of a production department can control the wastage of power in his department; however, he cannot control the power which is being wasted in the power house itself resulting in higher cost per unit of power to him. Similarly, he cannot control the increase in the cost of materials consumed to his department if the purchase department, which is the supplying department, buys the materials at higher prices due to its own inefficiency. Such costs are controllable at a particular level of management while they are uncontrollable at some other level of management.
The difference between controllable and uncontrollable costs is of a particular significance to the management and the executive should be held responsible only for those costs which are within his or her control and not for costs which are beyond his control.
Imputed or hypothetical costs: These are costs which do not involve cash outlay and they are not included in cost accounts; however, are important for making management decisions. For example, interest on capital is ignored in cost accounting through it is considered in financial accounting and if two projects require unequal outlays of cash, the management must take into consideration interest on capital to judge the relative profitability of the projects.
Differential, incremental or decremental costs: The difference in total costs between two alternatives is termed as differential cost. In case the choice of an alternative results in increase in the total cost, such increased costs are known as