Struggling with stepped cost
alexnwa
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 semivariable. 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.
(1) Original budget is 80,000 for Energy
Actual budget is 78,000
what is the flexed budget? giving that the Energy cost is semivariable. 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.
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Comments

(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 (020,000 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.2 
Thank you very much for your explanation.0