Question

Distinguish between controllable and uncontrollable variance

Answer 1

What is Controllable Cost?Controllable cost is an expense that can be increased or decreased based on a particular business decision. In other words, the management has the power to influence such decisions. These costs can be altered in the short term. In general, costs relating to a particular business decision is controllable; if the company decides to refrain from making the decision, the costs will not have to be incurred. The ability to control costs mainly depends on the nature of the cost and decision-making authority of the managers.Variable CostVariable costchanges with the level of output, as such is increased when a higher number of units are produced. Direct material cost, direct labor, and variable overheads are main types of variable costs. Thus, if the increase in output is avoided, the related costs can be controlled.

Answer 2

Explanation:

Controllable and Uncontrollable Variances

The variances may be categorized as controllable and uncontrollable. If a variance can be regarded as a responsibility of a par ticular person or department, it is known as controllable variance.

For example, if materials are used in excess of the standard or more labour hours are spent than the standards, it can be assigned to the responsibility of a particular person and that person would be liable for correcting it as soon as possible. If the excessive use of material is due to defect in it, the purchasing department would be responsible for correcting it.

An uncontrollable variance is one which is not in control of any person or department.Such a variance is caused by external factors like change in market conditions, fluctuations in demand and supply etc. No particular in dividual within the organization can be held responsible for such variances. A distinction between controllable and uncontrollable vari ances is essential for fixing the responsibility.