Controllable costs are those costs that can be altered in the short term. More specifically, a cost is considered to be controllable if the decision to incur it resides with one person. If the decision instead involves a number of individuals, then a cost is not controllable from the perspective of any one person. Also, if a cost is imposed on an organization by a third party (such as taxes), this cost is not considered to be controllable. Examples of controllable costs are:
- Direct materials
- Dues and subscriptions
- Employee compensation
- Office supplies
The reverse of a controllable cost is a fixed cost, which can only be altered over a long period of time. Examples of fixed costs are rent and insurance.
A cost could be uncontrollable at a low level of an organization, because a front-line manager is not authorized to incur or stop the cost. However, a more senior manager might be given this authority. Thus, it is possible for cost to be controllable at the higher levels of an organization and uncontrollable lower down. For example, the decision to pay for employee training may reside with a vice president and not with a local department manager, so the cost is controllable for the vice president, but not for the department manager.