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UNIVERSITY OF NATIONAL AND WORLD ECONOMY
COURSEWORK
The Difference Between Controllable And Uncontrollable Cost
Sofia,
27/03/2010
Contents
2. Controllable and uncontrollable cost
A cost management system is a management planning and control system which aimed to measure the cost of the resources consume in performing the organizations’ activities, to identify and eliminate non-value added cost and to determine the efficiency and effectiveness of all major activities perform in the enterprise. Mush of the information in the organization is focused on the cost. For example, in planning the flight schedules of British Airlines, managers must consider aircraft fuel cost, salaries of flight crews and airport landing fees. Controlling the cost of manufacturing personal computers requires that Hewlett Packard’s accountants carefully measured and keep track of production cost. For making decisions about tuition and admission requirements, university’s board of trustees must have information about the cost of providing educational services.
Each of these examples focuses on costs of one type or another. Because of the importance of the costs and cost system, this coursework aims to represent the different types of costs, how to analyze and control costs and in particularly, the difference between controllable and uncontrollable cost.
Cost classification is the process of grouping costs according to their common characteristics. Cost may be classified accounting to their nature, material, labor and expenses and a number of other characteristics. The same cost figures are classified according to different ways of costing depending upon the purpose to be achieved and requirements of particular concern. The important ways of classification are:
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How companies like Hewlett- Packard and Chrysler Corporation, control the many overhead costs incurred in their production processes? Some overhead costs are variable and some are fixed costs and different people are responsible or a different kind costs. The different costs often exhibit different relationship to productive activity. That’s the reasons controlling manufacturing overhead to be a big challenge for managerial accounting.
The tool used by most companies to control overhead costs is called flexible budget. A flexible budget is a detailed plan for controlling overhead costs that is valid in the firm’s relevant range of activity. A flexible budget cover a range of activity within which the firm may operate. The flexible budget is not based on only one level of activity like the static is.
Let’s suppose that one company, for example company X, produced 2000 pieces from its product P1 during Jun 2009, used 6000 machine hours, and incurred electricity cost of $3200. The rate for machine hour is $0.50.
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A standard - costing system serves two purposes. This are cost control and product costing. The managers in the organization use the standard costing as a benchmarking against which to compare actual cost incurred. Managers use management by exception to determine the causes of significant cost variance. Managers determine the significance of cost variance through judgment and rules of thumb. In a standard - costing system the control of overhead cost can be made by the flexible budget. The managers use it as a benchmark against which to compare actual overhead cost. The benefits offered by the standard - cost system will be obtained only if the system is used properly.
1. Garrison H. Ray- Managerial Accounting, fifth edition, 1988, 884p.
2. Hilton W. Ronald- Managerial Accounting, Cornell University, 1991, 845p.
3. http://www.scribd.com/doc/17009066/Cost-Basics
4. https://acc.dau.mil/CommunityBrowser.aspx?id=243039
5. http://professional-edu.blogspot.com
6. http://www.taxpolicycenter.org/briefing-book
Темата е разработена 27. 03. 2010 г.
Съдържа изчисления.
Най – новата информация е от 2010 г.
Ключови думи:
controllable and uncontrollable cost, cost classifications, controlling costs, overhead costs, flexible budget, cost variance, benchmark
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