# Struggling with stepped cost

Registered Posts: 21
Please, could someone explain this question below:
(1) Original budget is 80,000 for Energy
Actual budget is 78,000
what is the flexed budget? giving that the Energy cost is semi-variable. The variable element is £0.50 per

(2)Original budget is 91,000 for Equipment hire
Actual budget is 86,350
what is the flexed budget? Equipment hire is a stepped cost, budgeted to increase uniformly at every 20,000 unit of production.

note: original budget is 121,000 for sales volume and 105,000 for actual budget.

• MAAT Posts: 102
edited February 2018
(1) First work out variable element of original budget, which is £0.50*121,000=£60,500
Then, take the variable element from the total original budget to work out the fixed element, £80,000-£60,500=£19,500.
Work out the variable cost for the flexed budget, £0.50 * 105,000= £52,500
Then add the fixed element, £52,500+£19,500= £72,000

(2) The original budget took into account seven steps of uniform cost increase (0-20,000 is a step in itself). Therefore, we can divide the original budget by seven to get an increase of £13,000 per step.
Since the actual volume was 105,000, there are only six steps. So the flexed stepped cost would simply be £13,000 * 6= £78,000.

Hope that makes sense, anything that needs clarifying let me know.
Matthew Dearlove MAAT
Currently on CIMA Management Level. Passed P2, F2 and E2. Preparing for November 19 MCS.
• Registered Posts: 21
Thank you very much for your explanation.