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Chapter 24: Q15RQ (page 1355)

Explain the difference between a controllable and a non-controllable cost.

Short Answer

Expert verified

A controllable cost is one that the administration can influence with their choices. A non-controllable cost is one that the administration cannot impact.

Step by step solution

01

Meaning of Controllable Cost

The costs that can be changed in response to a need or business option are called controllable costs. These costs pertain exclusively to a specific item, division or function. Some examples are direct labour, direct supply, contribution, preparation cost, bonus, membership, legitimate expenses and official costs.

02

Difference between a controllable and a non-controllable cost

Characteristics

Controllable

Non-controllable

Definition

Alludes to a cost which will be changed depending on a necessity or business choice.

Alludes to a cost that cannot be changed in response to a particular business need or choice.

Time span

short-term changes are possible

Long-term cost changes are possible.

Example

Direct labour, direct supplies, contributions, and other expenses are controlled costs.

Depreciation, insurance, and administrative overhead are examples of unavoidable expenditures.

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Most popular questions from this chapter

Question: What is the purpose of a responsibility accounting system?

One subunit of Racer Sports Company had the following financial results last month:

Subunit X Actual Results Flexible Budget Flexible Budget % Variance

Variance (F or U) (F or U)

Net Sales

Revenue \( 476,000 \) 451,000

Variable

Expenses 261,000 251,000

Contribution

Margin 215,000 200,000

Traceable

Fixed Expenses 40,000 26,000

Divisional

Segment Margin \( 175,000 \) 174,000

Requirements

1. Complete the performance evaluation report for this subunit (round to two decimal places).

2. Based on the data presented and your knowledge of the company, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management鈥檚 decision criteria is to investigate all variances equal to or exceeding \(8,000 andexceeding 10% (both criteria must be met)?

4. Should only unfavorable variances be investigated? Explain.

5. Is it possible that the variances are due to a higher-than-expected sales volume? Explain.

6. Will management place equal weight on each of the variances exceeding \)8,000? Explain.

7. Which balanced scorecard perspective is being addressed through this performance report? In your opinion, is this performance report a lead or a lag indicator? Explain.

8. List one key performance indicator for the three other balanced scorecard perspectives. Make sure to indicate which perspective is being addressed by the indicators you list.

What is a key performance indicator?

Explain the difference between market-based transfer prices and cost-based transfer prices.

Fill in the blanks with the phrase that best completes the sentence.Some phrases may be used more than once and some not at all.

Phrases:

  • cost center
  • revenue center
  • investment center
  • lower
  • profit center
  • higher
  • responsibility center

1. The maintenance department at the local zoo is a(n)___________

2. The gift shop at the local zoo is a(n)____________

3. The menswear department of a department store, which is responsible forbuying and selling merchandise, is a(n)_______________

4. The production line at a manufacturing plant is a(n)

5. A( n)________________is any segment of the business whose manager isaccountable for specific activities.

6. A division of a beverage manufacturing company responsible for aparticular brand of soft drink is a(n)_______________

7. The sales manager in charge of a shoe company鈥檚 northwest sales territoryoversees a(n)

8. Managers of cost and revenue centers are at_____________ levels of theorganization than are managers of profit and investment centers.______
See all solutions

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