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How can a flexible budget aid decision-making beyond control? How does flexible budgeting handle a budget prepared as a percentage of capacity? How do you separate fixed and variable elements of a mixed overhead for flexing? What is regression analysis for cost estimation and how does it improve on high-low? How do you flex a budget with multiple cost drivers? How do you flex a budget when there is a mix of products? How does cost behavior analysis underpin flexible budgeting? How are flexible budgets used in service and overhead-heavy organizations? How do you prepare a flexible budget statement showing several activity levels? How do semi-fixed (step) costs complicate flexible budgeting and variance analysis?
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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