ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
Which one of the following is the best example of a controllable cost from the viewpoint of a divisional manager who has authority over their own division only?
Overtime authorised by the divisional manager is the controllable cost, because the manager can directly decide its level. Head office charges, centrally purchased equipment depreciation and apportioned group insurance are determined by others, so they are uncontrollable at divisional level and should not be used to judge the manager.
- AHead office management charge allocated to the division
- BDepreciation on equipment centrally purchased by head office
- COvertime paid to division staff, authorised by the divisional managerCorrect
- DGroup-wide insurance premium apportioned to the division
Explanation
A cost is controllable if the manager can influence it. Overtime authorised by the divisional manager is within their control. The other items are allocated or decided centrally, so the manager cannot influence them and they should be excluded or shown separately when assessing the manager's performance.
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