Stepped Costs

katieen1

I originally posted this in the wrong forum.

I am currently revising for the budgeting cba and I am struggling to understand how to calculate stepped costs.

Tha question says that the budget for equipment hire is stepped, increasing at every 15,000 units of monthly production.

On the monthly operating statement is has:
Budget is 76,000 units and £48,000
Actual is 72,000 units and £42,000
Flexed budget is 72,000 units

Please could someone explain this for me???? I have read the other discussions on stepped costs but I still cannot relate it to this question as I am completely baffled!!

Thank you for your help.

Katie

Woooof

For 76,000 units you need 6 steps in the cost of equipment hire. (76,000 / 15,000 = 5.066 & it needs to be rounded to the higher number)

£48,000 / 6 = £8,000 per step

72,000 / 15,000 = 4.8 (5 steps)

5 * £8,000 = £40,000

Actual cost - flexed cost = £2,000 Adverse

Hopefully that helps

katieen1

Thank you so much, makes sense now!!