Budgeting how to flex stepped cost?

topcat

Hello,

if someone could help i would be grateful as always

This one seems to be insanely hard but bet there is a easy way to do it

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Budget

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Actual

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Flexed budget
Units

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31,500

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34,000

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34,000

£ equipment hire

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£32,000

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£34,000

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?


The budget for equipment hire is stepped, increasing at every 4000 units of monthly production

i need to flex the budget i think it is done by high-low method somehow but can not find a example to follow the book gives the answer as £36,000 but doesnt tell you how to work it about as useful as a chocolate teapot


( if you need any more info let me know ill grab it from the book) Osborne page 177

coojee

The budget is 31,500 units, this is made up of 8 steps (31,500/4000 = 7.875 which has to be rounded up to 8) of 4,000 units. £32,000/8 = £4,000 per step. The flexed budget is 34,000 units which contains 9 steps (34,000/4,000 = 8.5 rounded up = 9), 9 steps x £4,000 = £36,000

Nps

You don't use the high/low method for stepped costs. If costs go up every 4000 units, you need to work out how many blocks of 4000 are included in your budget, so in your example, there are 8 blocks of 4000 accounted for (7 would only allow 28000, but 8 blocks will allow you to go up to 32000 units). You can then work out the cost per 4000 (32000/8). Your flexed budget needs an extra block of 4000 (to allow production of 32000 to 36000 units) so you can now work out your flexed cost.

topcat

You guys are awesome make it look easy, thank you very Was messing about with this for half an hour at least belive it or not haha

topcat

You guys are awesome make it look easy, thank you very Was messing about with this for half an hour at least belive it or not haha