What is the significance of the term non controllable cost

If the cost is from a supplier, a negotiation may reduce the cost but it is because the supplier agrees to it. If it is from the government, it might be impossible to negotiate for cost reduction. However, a court appeal may affect the amount paid.

Examples of non-controllable costs are electricity bills, fines from the government, taxes to be paid by the entity, among others. In conclusion, non-controllable costs are not within the control of management.

However, the board may have the power to control such cost but the red-tapism will extend the time the cost will be incurred.

The cost that is outside the entity can never be controlled unless through negotiations and appeals in a court of law. WhatsApp Group. By contrast, non-controllable costs are those that a company cannot change, such as rent and insurance.

It is important for management to know the differences between these two cost types. We have listed three reasons for this importance below. Efficient management. Non-controllable costs represent costs that are out of his or her control or influence. These usually include costs that are shared by several departments, such as tax, insurance, building depreciation, etc. Identifying controllable and non-controllable costs requires understanding authorities and responsibilities within the organization.

Controllable costs are costs that can be influenced or regulated by the manager or head responsible for it. For example: direct materials, direct labor, and certain factory overhead costs are controlled by the production manager. Another example: the sales manager has control over the salary and commission of sales personnel. Unfortunately, the decision to purchase or update a machine is not made by the factory floor foreman. The company upper management or officers made all the capital acquisition decisions.

This means that the foreman has no influence over how much will be spent and when.