Management Accounting · Responsibility Accounting

Controllable and Non-Controllable Costs in Responsibility Accounting

Updated 10 October 2026 · Fact-checked

A controllable cost is one a manager can influence through their own decisions within a given period. A non-controllable cost is set by someone else or by past decisions. In responsibility accounting, you judge a manager only on controllable items, and report non-controllable items separately or after the controllable result.

Understand Controllable and Non-Controllable Costs

Responsibility accounting collects costs and revenues by responsibility centre and holds the manager of each centre answerable for them. For this to be fair, you must ask one question about every item: can this manager influence it?

A controllable cost is a cost whose amount the manager can change by their own decisions, at their level, in the period under review. Direct materials used, overtime in a department, and repairs ordered by the manager are typical examples. A non-controllable cost is one the manager cannot influence at that level. Examples are rent of a building decided by head office, depreciation on assets bought by top management, and a share of corporate overheads allocated to the centre.

Controllability is not a fixed label on a cost. It depends on level and time. A plant rent is non-controllable for the production supervisor, but top management can control it when it decides whether to lease a bigger or smaller plant. Over a long enough period, almost every cost becomes controllable by someone. So always ask: controllable by whom, and over what period?

This idea is called the controllability principle. Managers should be evaluated and rewarded only on results they can influence. If you charge a manager with costs they cannot affect, the report loses its motivating value and can cause resentment. It can also hide real inefficiency, because the manager's true performance gets mixed up with outside factors.

Do not confuse this with fixed and variable. Cost behaviour (fixed or variable) relates to activity volume. Controllability relates to who has authority over the cost. A fixed cost can be controllable, such as a supervisor's discretionary advertising budget. A variable cost can be non-controllable, such as a raw material price fixed by a central purchasing department.

Key rules to remember

Controllability principle: Manager is evaluated on: items the manager can influence at that level and in that period; Non-controllable items are excluded from the manager's evaluation or shown separately.
Controllable cost: Controllable cost = cost whose amount the manager can change by their own decisions; Always state the level (manager) and the time period.
Controllable profit or margin of a centre: Controllable result = Revenue − Controllable costs; Used to assess the manager. Non-controllable costs are then deducted to show the centre's overall result.
Variance on controllable items: Variance = Actual − Budget (or Budget − Actual for costs, stating Favourable/Adverse); For a cost, actual below budget is favourable and actual above budget is adverse.

How to solve Controllable and Non-Controllable Costs questions

Use this method for any question that asks you to classify costs or prepare a performance report for a responsibility centre.

1Identify the responsibility centre and its manager. Note the level of authority (supervisor, plant manager, divisional head).
2List every cost and revenue item given in the question.
3Classify each item as controllable or non-controllable for that manager. Ask who decides the amount, and whether the manager can change it in the period.
4Give a one-line reason for each classification. Examiners award marks for the reasoning.
5Prepare the report in columns: Budget, Actual, Variance, and Favourable/Adverse. Group controllable items first and show their total.
6Show non-controllable items separately below the controllable total, with a separate subtotal. Do not mix them in the manager's evaluation.
7Comment briefly on the significant variances. Identify the controllable ones that need action and state that non-controllable ones should not be used to judge the manager.

Quickest way: Three-question test for each cost

When to use it: Use this in MCQs and in short classification questions where time is limited.

Who decides this amount? If it is the manager in question, it is controllable.
Can the manager change it within this period? If not, it is non-controllable for now.
Is it an allocation from head office or a past top-level decision (rent, depreciation, apportioned overheads)? Treat it as non-controllable for lower-level managers.
For a report, write controllable items first, total them, then list non-controllable items below the total.

Common mistakes in Controllable and Non-Controllable Costs

Treating all fixed costs as non-controllable and all variable costs as controllable.
Students mix up cost behaviour with controllability.
Fix: Decide controllability by who has authority over the cost. A discretionary fixed cost can be controllable. A variable cost with a price set centrally may not be.
Saying a cost is controllable or not without naming the level of management.
Students think controllability is a permanent feature of the cost.
Fix: Always write 'controllable by the plant manager' or 'non-controllable at departmental level'. The same cost can differ by level.
Including allocated head office overheads in the manager's evaluated cost.
The costs appear in the centre's cost sheet, so students assume they belong to the manager.
Fix: Show them below the controllable total as non-controllable. They matter for the centre's overall profitability, not for the manager's evaluation.
Marking a variance favourable or adverse the wrong way round for costs.
Students apply the revenue rule to costs.
Fix: For costs, actual less than budget is favourable and actual more than budget is adverse. Check each line before moving on.
Ignoring time period, so that costs are called non-controllable forever.
Students forget that long-term decisions can change most costs.
Fix: State that in the short term certain costs are non-controllable, but top management can control them through long-term decisions.

Worked examples

Example 1

Classify the following costs of the Assembly Department of Kaveri Engineering Ltd as controllable or non-controllable by the Assembly Department Manager, with a reason: (a) overtime wages authorised by the manager, (b) factory rent fixed by the head office, (c) indirect materials requisitioned by the department, (d) depreciation on machinery bought by the Board, (e) share of corporate administration cost allocated by head office.

Show the solution

(a) Overtime wages: the manager decides when to authorise overtime, so it is controllable.
(b) Factory rent: fixed by head office under a lease, so the manager cannot change it. Non-controllable.
(c) Indirect materials: the department decides how much to requisition and use. Controllable.
(d) Depreciation on machinery: arises from a purchase decision by the Board, so it is non-controllable for the manager.
(e) Corporate administration share: an allocation imposed by head office, outside the manager's influence. Non-controllable.

Answer: Controllable: (a) overtime wages and (c) indirect materials. Non-controllable: (b) factory rent, (d) depreciation and (e) allocated corporate administration cost.

Example 2

The Packing Department of Sundaram Foods Ltd has the following figures for a month. Budget: direct materials ₹2,40,000, direct labour ₹1,50,000, supervisor's salary ₹40,000, repairs ₹30,000, allocated head office cost ₹60,000. Actual: direct materials ₹2,52,000, direct labour ₹1,44,000, supervisor's salary ₹40,000, repairs ₹36,000, allocated head office cost ₹66,000. The manager controls materials, labour and repairs. Prepare a performance report showing variances and comment on it.

Show the solution

Controllable items: direct materials, direct labour, repairs.
Direct materials: Actual ₹2,52,000 − Budget ₹2,40,000 = ₹12,000 Adverse.
Direct labour: Actual ₹1,44,000 − Budget ₹1,50,000 = ₹6,000 Favourable.
Repairs: Actual ₹36,000 − Budget ₹30,000 = ₹6,000 Adverse.
Total controllable: Budget = ₹2,40,000 + ₹1,50,000 + ₹30,000 = ₹4,20,000. Actual = ₹2,52,000 + ₹1,44,000 + ₹36,000 = ₹4,32,000. Variance = ₹12,000 Adverse.
Non-controllable items: supervisor's salary ₹40,000 budget and ₹40,000 actual, variance nil. Allocated head office cost: ₹66,000 − ₹60,000 = ₹6,000 Adverse. Subtotal budget = ₹1,00,000, actual = ₹1,06,000.
Total cost for the centre: Budget = ₹4,20,000 + ₹1,00,000 = ₹5,20,000. Actual = ₹4,32,000 + ₹1,06,000 = ₹5,38,000. Variance = ₹18,000 Adverse.
Comment: the manager is responsible for the ₹12,000 adverse controllable variance. Materials (₹12,000 A) and repairs (₹6,000 A) need investigation, partly offset by labour savings (₹6,000 F). The ₹6,000 adverse head office allocation is not the manager's responsibility and should not be used to judge performance.

Answer: Controllable cost: Budget ₹4,20,000, Actual ₹4,32,000, variance ₹12,000 Adverse. Non-controllable cost: Budget ₹1,00,000, Actual ₹1,06,000, variance ₹6,000 Adverse. Total variance ₹18,000 Adverse, of which only ₹12,000 is attributable to the manager.

Exam tips

In classification questions, write a one-line reason against each item. A bare label earns fewer marks.
Always state the level of manager. Say 'for the departmental manager' in your answer.
In a report, put controllable items first with a clear subtotal, then non-controllable items. This layout earns presentation marks.
Mark every variance as Favourable or Adverse, and add a two-line interpretation. ICMAI expects comments, not only figures.
In MCQs, watch for options that confuse controllable with variable. Pick the answer based on authority over the cost.

Practice questions from Responsibility Accounting

Controllable and Non-Controllable Costs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Controllable and Non-Controllable Costs: frequently asked questions

What is the difference between controllable and non-controllable costs?

A controllable cost can be influenced by a particular manager within a given period. A non-controllable cost cannot be influenced by that manager. The distinction depends on the manager's level and the time period.

Can a cost be controllable for one manager and non-controllable for another?

Yes. Factory rent is non-controllable for a department manager but controllable by top management, which decides on leasing premises. Always name the level when you classify.

What is the controllability principle?

It says managers should be evaluated only on items they can influence. This keeps performance reports fair and motivating. Non-controllable items should be excluded or shown separately.

How do I prepare a responsibility accounting performance report?

List budget, actual and variance for each item, marking each as favourable or adverse. Show controllable items first with a total, then non-controllable items separately. Add short comments on the significant controllable variances.