Stepped costs in budgeting

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November 4, 2018 at 12:02 pm #483758
hitsui
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Aoife co manufactures headphones and has developed a new handset H. The maximum production capacity is 150,000 units and the management accountant is preparing an annual flexible budget.

Units 100,000. 120,000. and 150,000
Material costs $700000. $840,000 and $1050000 respectively.
Labour costs $750000. $900000 and 1125000 respectively.
Incremental fixed costs are $60,000 each for the three units.

a) assuming the budgeted figures are correct what would the flexed total production be if production is 90% of maximum capacity ?

The answer is 150000*90%=135000
Stepped supervisors costs=135000/15000=9 steps
I understand it till here but i don’t understand the the stepped costs= 9 steps * $42000 per step= $378000
i dont understand how they got the $42000

Could you please help? 🙂
November 4, 2018 at 3:49 pm #483782
John Moffat
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Either you have missed copying out part of the question, or it is missing in your book.

There is no mention of supervisors in the question. The material and labour costs are completely variable, and the incremental fixed costs are completely fixed.
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