All 34 Flexible Budgets questions
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Budgeting & Forecasting › Flexible Budgets

What is a step (stepped) fixed cost and how is it handled?

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Answer

A step fixed cost is fixed over a range of activity but jumps to a higher level once activity crosses a threshold (e.g., needing an extra supervisor per shift). In flexible budgeting it's treated as fixed within each step; when flexing across a step boundary, the higher fixed cost is used. Ignoring steps understates costs at higher volumes.
Real-world example Adding a second production shift adds a supervisor's salary—a step up in 'fixed' cost at higher volume.

Common follow-ups: How does a step cost behave? | Why must steps be considered when flexing?

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All 34 Flexible Budgets questions