ACCA Applied Knowledge · Management Accounting · Cost classification
Which of the following best describes a step cost?
A step cost remains constant in total within a range of activity and then jumps to a higher level once that range is exceeded, such as renting an extra warehouse. It differs from a semi-variable cost, which combines fixed and variable elements.
- AA cost that stays constant in total within a given range of activity but jumps to a new level when that range is exceededCorrect
- BA cost that changes in direct proportion to activity at all levels
- CA cost with a fixed element and a variable element
- DA cost that falls per unit as activity rises but is variable in total
Explanation
A step cost is fixed within a relevant range of activity and then rises by a lump sum once the range is exceeded, for example renting an extra warehouse. A mixed cost is a different thing, as it has a fixed and a variable element, so option C describes a semi-variable cost.
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