Stepped cost, level 4 Budgeting

Jayney
Jayney Just JoinedKentAAT Student, AATQB Posts: 21
I wonder whether someone can shed some light on stepped cost - Equipment hire is a stepped cost, budgeted to increase uniformly at every 20000 units of production.
original units 121000, equipment hire cost £91000. Actual units 105,000 and equipment hire cost 86,350. What would the flexed budget equipment hire cost be? Thank you in advance

Comments

  • Nunezertron
    Nunezertron Settling In Nicely Registered Posts: 20
    Flexed budget figure is £78,000.

    The cost is stepped so 0 - 20,000 units represents one lot of whatever the stepped cost is, 20,000 - 40,000 incurs two lots of the stepped cost etc. At 121,000 units you have 7 lots of stepped cost totalling £91,000 i.e. £13,000 per increase. A production of 105,000 units would have six lots of this cost so 6 x £13,000 = £78,000
  • muntxi
    muntxi Registered Posts: 2
    The answer is £78,000.

    121,000 units / 20,000 units = 6.05, that is 7 "steps" of 20,000 units each.
    Total cost of £91,000 / 7 steps = £13,000.

    105,000 units / 20,000 units = 5.25, that is 6 "steps".
    6 x £13,000 = £78,000.
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