Let step cost take the example of company ABC Ltd which is a toy manufacturing unit. A type of expense that is more or less constant over a low level shift in activitybut which changes incrementally when activity shifts substantially. The opposite is true, too—if business activity slackens, a material portion of costs will drop, with a step-down.
Мир кэшбэк 10 процентов step cost
This cost level remains constant up to 65, units until it steps up to the next range. As the factory production increases, it hires more supervisors to oversee the workers and operations. These supervisors are capable of overseeing a range of production volumes.
Think about this concept with the graph above. Activity increases. When the activity level increases above the upper threshold level, management has the choice of either accepting no additional activity and not incurring an additional step fixed cost, or of accepting the increase in activity and incurring the additional cost.
For example, if sales increase to a certain maximum level, management can either turn away any additional customer orders or accept the orders and incur the additional step fixed cost required to process the additional sales. Examples of step fixed costs include: The cost of starting up a new production shift, which includes utilities and the salaries of shift supervisors.
The cost of a new production facility, which includes depreciation on the equipment and the salaries of the production line supervisors. The cost of rolling out an entirely new sales region, which may include the cost of a warehouse distribution system.
Related Courses Cost Accounting Fundamentals. The opposite is true, too—if business activity slackens, a material portion of costs will drop, with a step-down. A high-tech gear manufacturer makes virtual reality headsets in one shift of eight hours with 25 employees and one supervisor.
All of the headsets are shipped out, and there is no inventory. Then, demand increases by one headset. Because the production line is at full capacity, the company must add another shift to manufacture units to units. A coffee shop can serve 30 customers an hour with one employee.
Understanding step costing is extremely important when a company is about to reach a new and higher activity level, where it will be required to traverse a large step cost. In some cases, the step cost may eliminate profits that management had been expecting with increased volume. It may make sense to incur higher step costs if revenue is sufficient to cover the higher cost and provide an acceptable return.
If the increase in volume is relatively minor, but still calls for incurring a step cost, profits may actually decline. Just as management may need to step up costs, they may also need to step down when the activity level declines below a certain threshold. In such cases, management may choose to reduce or eliminate the associated step fixed cost.
Portfolio Management. Corporate Finance.Закладка в тексте
Cost step route price
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