ACCA MA Syllabus D. Budgeting - Controllable and uncontrollable costs - Notes ^{2 / 3}

The main problem with measuring performance is in deciding which costs are controllable and which costs are traceable.

The performance of a manager is indicated by the controllable profit and the success of the division as a whole is judged on the traceable profit.

Controllable costs and revenues are those costs and revenues which result from decisions within the authority of a particular manager within the organisation.

These should be used to assess the performance of the managers.

For example, depreciation on machinery in Division A is a traceable fixed cost because profit centre managers do not have control over the investment in non-current assets.

Most variable costs are controllable in the short term because managers can influence the efficiency with which resources are used.

Some costs are non-controllable, such as increases in expenditure items due to inflation.

Other costs are controllable in the long term rather than the short term.

For example, production costs might be lower by the introduction of new machinery.

However, its results will be seen in the long term.