Please can someone explain to me the calculation of stepped supervisor costs and stepped cost in this example in Kaplan study text? I am finding it difficult to understand how they got the figures in calculating stepped supervisor costs and also the question did not mention anything about supervisor, so how do i know when to calculate for stepped cost in any question? I will be really grateful if there is anyone that can assist in the explanation Thanks.
The Question is as follows:
Aoife Co manufactures smartphones and has developed a new handset, the ‘H’. The maximum production capacity of Aoife Co is 150,000 units of the new handset. The company’s management accountant is currently preparing an annual flexible budget and has collected the following information so far for the ‘H’: Production units of 'H' 100,000 units 120,000 units 150,000 units Material costs $700,000 $840,000 $1,050,000 Labour costs $750,000 $900,000 $1,125,000 Incremental fixed costs $60,000 $60,000 $60,000 (a) Assuming the budgeted figures are correct, what would the flexed total production cost be if production is 90% of maximum capacity?
solution to a): (a) 90% of capacity = 90% × 150,000 = 135,000 units Stepped supervisor costs = 135,000/15,000 = 9 steps. Material cost = 135,000 × $7 per unit = $945,000 Labour cost = 135,000 × $7.50 = $1,012,500 Fixed costs = $60,000 Stepped costs = 9 steps × $42,000 per step = $378,000 Total flexed production cost = $2,395,500
I think there may be something missing from your text. My study guide mentions the supervisors
