Controlled and uncontrollable expenses

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Managed costs under the control of the enterprise depend on its actions. For example, the company independently manages the costs of raw materials, determines the number of employees and their wages when deciding on the production volume.

Unmanaged expenses will be incurred automatically by a business regardless of its wishes. It is impossible to avoid expenses on taxes and insurance, even if you try. In this case, you should expect the attention of the tax inspectorate and penalties. Neglect of mandatory payments is a violation of laws.

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Refundable and non-refundable
Return on investment is justified if the business was able to recoup some of the money it spent. For example, initial investments in raw materials, equipment, and wages can be offset by profits from the sale of finished products.

Sunk costs are expenses that will not be returned to the company because they are not used to increase profitability. Examples include loyalty fees, warranty costs, and investments in information technology.

Costs that matter and unnecessary expenses
It is important to understand that administrative costs are significant. For example, when a company introduces a new product to the market, it is necessary to purchase new equipment, train personnel, and so on. All costs associated with the implementation of these innovations will be significant, they can be called adequate, suitable.

Costs that matter and unnecessary expenses

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It is also worth considering that the following expenses may also be significant:

redundant (if the decision is not made, no costs will arise - you can abandon the new product and not spend money on equipment and training for staff);

alternative (income that the company could have received if it had made a different decision, for example, instead of new lemonade, it could have started producing non-alcoholic beer and made money on it).

Fictitious costs are not dependent on management decisions. These are all mandatory expenses such as taxes, equipment repairs, administrative costs, as well as all funds that were spent in the past but do not affect future profits.

When a division of a company closes, it is important to distinguish between relevant and irrelevant costs. The former will disappear along with the branch, while the latter will continue to exist.