Budgeting Exam - Help!

zippi

Hi Everyone,

I would appreciate if someone could help me understand stepped costs in Flexed operating statement.

First Questions is Original budget for Equipment hire is 178,000 units is costing £24000. It says Equipment hire is a stepped cost, budgeted to increase at every 30,000 units of monthly production. I have to flex it to match Actual units of 192000. I understand when they are talking about 1 supervisor cost etc but large figure as these completely confuses me!

This question is from Budgeting book Sample assessment 1 Task 7. I have further questions but I will ask one at a time after one response.

Hope someone can help me!

SandyHood

178,000 units will require 6 steps.
Each step is capable of producing 30,000 units
So divide 178,000 by 30,000 and round up

This is rather like deciding how many taxis (all capable of carrying 4 passengers) you need to transport 13 people. 13/4 rounded up to 4.

If you know the total cost (of your 6 steps) is £24,000 that is sufficient information for you to know the cost per step is £4,000.

Now go to the Actual Information (for the first time)
192,000 units will need 192,000/30,000 = 7 steps

7 steps at £4,000 per step = £28,000

I hope this helps
Yours
Sandy
sandy@sandyhood.com
www.sandyhood.com

zippi

Thank you Sandyhood, that makes perfect sense! I really appreciate your help. I didn't actually realise but when I did my first practice paper in BPP from question bank it explained there quite well but I think you just beat them by giving me a taxi example. smile: