Which term best describes a cost that can be influenced by management decisions and actions?

• A. Responsibility accounting
• B. Incremental cost
• C. Environmental external failure costs
• D. Controllable cost

Answer: (D)

Controllable cost describes a cost that a manager can influence through their decisions and actions within their area of responsibility and a given time period. This is exactly what you’d expect when evaluating performance in responsibility accounting: managers are held accountable for costs they can actually affect, such as discretionary expenses, departmental purchases, or energy use, which can be changed by how they run the operation.

Incremental cost refers to the extra cost of choosing one option over another, not to the degree a cost can be influenced by a manager. Environmental external failure costs are those costs arising from failures that affect external parties, not costs that a manager typically controls day to day. Responsibility accounting is the framework for assigning responsibility for costs to the managers who can influence them, rather than the idea of a cost that is controllable.