Stepped cost (Budgeting Level 4)

bdrjaleel

I am currently working on Budgeting Sample Assessment no 2, and i am stuck with Task 7
Can someone please guide me how the stepped cost for Equipment hire is flexed to 84,000 whereas the original budget given in the question was 80,000 and the actual expense given was 74,000.

Additional information provided is:
Equipment hire is a stepped cost budgeted to increase every 20,000 units of monthly production.

Thanks

SandyHood

Look at the budgeted output.
Divide by the number of units per step. (20,000) Round up to the next whole number.
This gives you the number of steps in the original budget.
Divide the budgeted cost by the budgeted ste
This gives you the cost per step.

Then look at the actual units produced.
Divide total units produced by the number of units per step and round up.
This is the flexed number of steps.
Multiply by the cost per step for the flexed cost.

The principle of rounding up is similar to ordering taxis for a group getting from A to B. If 9 people are in the group and each taxi can take 4 people max. Then you need 3 taxis.

I hope this helps
Sandy

sandy@sandyhood.com
www.sandyhood.com