ACCA Applied Knowledge · Management Accounting · Flexible budgets
Which of the following best describes a stepped fixed cost when preparing a flexed budget?
A stepped fixed cost stays constant within a relevant range of activity and then jumps to a higher level once that range is exceeded, for example extra supervisors or a new machine. Flexed budgets must reflect the step when activity moves outside the range.
- AA cost that rises in proportion to activity
- BA cost that stays constant within a relevant range of activity but jumps when that range is exceededCorrect
- CA cost that falls per unit as activity rises but is zero at nil activity
- DA cost that is unaffected by activity at all levels
Explanation
A stepped cost is fixed within a range of activity, such as supervisors needed per 1,000 units, and then increases in a step. Proportional costs are variable, and costs unaffected at all levels are purely fixed.
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