TASK 1,STEPPED FIXED COST

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Mannaesi
Mannaesi Registered Posts: 80
in Management Accounting: Decisions and Control
Hello good people..........can you help me with this question especially with the step-cost

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  • Helper
    Helper Registered Posts: 3 New contributor 🐸
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    The stepped cost is the third cost, as somewhere between 8,000 and 10,000 units, there is a step up.
    Perhaps at 5,000 and 8,000 units two machines are used at a rate of £6,000 hire cost (So £12,000), but between 8,000 and 10,000 units, a third machine is hired. Three machines at £6,000 each would equal £18,000.
    You are required to state the cost at 7,000 units, so that is within the 5,000 to 8,000 unit range, where two machines are hired.
    Hence the required answer at 7,000 units is £12,000 (Still within 2 machine hire capacity.)
  • Mannaesi
    Mannaesi Registered Posts: 80
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    @Helper hellow dear,can you please try to explain it in a simpler way as i still dont get,perhaps explain how thy got 12000 pounds for 5000 units and 12000 pounds for 8000 units. and how you got the 6000 rate and why you assume two machines are to be used?
  • Mannaesi
    Mannaesi Registered Posts: 80
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    @Helper what if instead of 7000 units we were required to calculate the cost of 12000 units
  • Helper
    Helper Registered Posts: 3 New contributor 🐸
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    The step up (somewhere between 8,000 and 10,000 units) is an increase of £6,000.
    The reason I wrote 2 machines is £12,000 / £6,000 = 2 Machines.
    £18,000 / £6,000 = 3 machines.

    The probable capacity for each machine is 4,000 units. (In most AAT questions, you would be advised of this.)-

    1 machine has a capacity of 4,000 units, and each machine hire costs £6,000

    So between 1 and 4,000 units the costs would be £6,000.
    Between 4,001 and 8,000 units the costs would be £12,000.
    Between 8,001 and 12,000 units the cost would be £18,000.

    Continuing-
    Between 12,001 and 16,000 units the cost would be £24,000.

    I hope that helps further.

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