Note that concrete delivery cost is usually on a per-yard basis and can vary greatly based on staircase size. If you’re removing wooden stairs and replacing them with concrete, you can likely dispose of the material yourself, or you can pay a professional around $100 to disassemble and remove it for you. Staircase features can make your steps safer, more functional, and more decorative, but they will bump up your total installation price. Some defenders of the stepped-up basis have argued that eliminating it might provide a disincentive to save and subject estates to double taxation in combination with the federal estate tax. Following the doubling of the federal estate tax exemption in 2017, a modern-era record-low 0.04% of adult deaths in 2020 produced an estate tax liability.
The wages for these ten employees are fixed and remain constant for any production level below ten workers. Thus, the shift supervisor’s cost is a step cost when the company reaches a production requirement of 10,000 widgets. This new level of step cost will be maintained until another shift is added, at which point the company will incur another step cost for the night shift supervisor. This comprehensive guide will explore what step costs and curves, how they work in manufacturing, and how companies can effectively manage them. If the shop begins receiving 31 or more customers per hour, it must hire a second employee, increasing its costs to $70 ($40 for two employees, $30 for others). Concrete stairs are popular choices for leading up to your home’s entryways, thanks to their durability and modern appearance.
Average variable costs are represented as a U-shaped line on the cost curve. To an individual who understands step costs, they would recommend purchasing one machine and producing 1,000 pens and not 1,050. The revenues generated from 1,000 pens are $20,000 (1,000 x $20) and the total costs (one machine) are $15,000.
Curve cost analysis is primarily used to assist businesses in better understanding the CVP relationship. A graph summarizes this relationship between costs, volume, and profits. It allows owners to identify the production level at which profits would begin to be realized. This data can guide decision-making processes, lowering manufacturing costs and increasing profits. Understanding curve costs helps businesses implement effective pricing strategies.
Manufacturing businesses that optimize step costs stand a better chance of being competitive in the market. Companies can price their products more competitively by reducing costs, attracting a more significant market share. By identifying and correcting inefficiencies in the production process, businesses can ensure that their products are of the highest possible quality. Step-up in basis refers to the adjustment in the cost basis of an inherited asset to its fair market value on the date of the decedent’s death. Cost basis is what determines the taxes owed, if any, when the asset is sold. Cost basis starts with the price paid for an asset, plus any additional costs added over time to improve or maintain the original asset.
Step-Up in Basis for Community Property States and Trusts
A larger increase in expenses could overshadow the increase in revenue. On the other hand, when activity levels drop low enough to trigger the decrease, step costs can also go down. However, the company needs to buy an additional machine to increase its production capacity to the production level of 1,500.
- Within the relevant range of activity, the cost remains the same despite changes in production or operation.
- They use their expertise in cost accounting to interpret the cost curve and identify areas for cost reduction.
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Concrete Step Cost Factors
The management makes the required investment of incremental cost if the incremental revenues are higher than the incremental costs. In light of this, a choice is made regarding whether it is practical to advance to the subsequent activity level. The company’s anticipated increased revenue is then contrasted with this incremental cost. In the aforementioned example, a second, $15,000 machine would produce an extra 50 pens, yielding $100 in revenue. It might be easier to explain a step-wise cost with a diagram example.
What Is a Step-Up in Basis?
Marginal costs refer to the cost incurred for producing one additional output unit. Marginal costs increase as output levels increase due to the law of diminishing returns. Marginal costs are represented as an upward-sloping line on the cost curve intersecting the average total cost curve at the minimum point. Implementing production efficiencies, which increase the number of units produced with the existing production configuration, can postpone the point at which a step cost will be incurred. Another option is to provide employees with overtime so the company can produce more units without hiring additional full-time employees. Step costs move up and down in a step-like manner—horizontally over a range, then vertically, then horizontally, and so on.
Types of Step Costs and Their Implications
Step costs typically only occur when a company expands or meets its production capacity. Companies focus on their fixed costs to maximize profits at the end of the fiscal year. If a company’s fixed costs are too high, the company might not create a profit for that fiscal period. Additionally, companies that intend to expand calculate their step costs to determine if the added business will add enough revenue to turn a profit. For instance, cost curves help managers determine the optimal output level that maximizes profits while minimizing costs.
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Businesses need to be wary of step costs, especially when they are about to breach a threshold (reaching a higher level of activity than the maximum capacity). Understanding step costs helps the business in maintaining the highest level of profitability. This way, the management can gauge whether an increase or decrease in the level of activity can result in additional profits or not. Any cost that does not change, regardless of changes in production, is a fixed cost, explains the Corporate Finance Institute. Fixed costs are not affected in any way by changes in production, revenue or expenses.
Understanding Step Costs
For example, if you are a bakery, the more loaves of bread you bake, the more flour you will need to purchase each month. If your phone contract is for $50 per month, but you exceed your data use one month, your bill that month would be larger. Finally, the cost curve matters as it facilitates effective business strategy.
Examples of Step Fixed Costs
Usually, it will greatly depend on the size of the stairs, the material you choose, and the contractor you hire. Concrete is a cheaper material but takes more time to install, which is why the cost will ultimately increase. A low-grade cement step can cost $400, while a high-quality cement step costs about $800 on average. Higher-quality materials cost more upfront, but they tend to last longer and will likely require fewer concrete step repairs as they age. If the level of activity slacks down, such as a decrease in demand or production, the business will have to consider “stepping down” on costs. If it’s a fixed cost and you think that it’ll change if there’s a change in the level of activity that breaches a threshold, then it probably is a step cost.
For example, it might need to let go of some employees to save on labor costs when production slacks down. As such, they propose to upper management to increase production by 500 units. Currently, the plant is producing 5,000 units of products, all what is the average of which are sold within the same period that they produced. If it wants to increase production, it has to acquire another piece of machinery. A production plant is already operating at maximum capacity with its current equipment and machinery.