Which cost concept is exemplified by costs that stay constant within a range and jump to a higher level when capacity is exceeded?

Which cost concept is exemplified by costs that stay constant within a range and jump to a higher level when capacity is exceeded?

• A. Variable costs
• B. Fixed costs
• C. Step costs
• D. Sunk costs

Answer: (C)

Costs stay constant as activity grows within a level, then jump to a higher level when capacity is exceeded. This stepping happens because reaching the next capacity threshold requires adding a discrete resource, like another machine, shift, or supervisor, so total cost stays flat within a band and then increases in steps. This pattern is what defines step costs. It differs from purely variable costs, which rise continuously with activity, and from fixed costs, which are constant across most activity levels unless you redefine the relevant range. Sunk costs are historic and do not change with current or future activity.

Costs stay constant as activity grows within a level, then jump to a higher level when capacity is exceeded. This stepping happens because reaching the next capacity threshold requires adding a discrete resource, like another machine, shift, or supervisor, so total cost stays flat within a band and then increases in steps. This pattern is what defines step costs. It differs from purely variable costs, which rise continuously with activity, and from fixed costs, which are constant across most activity levels unless you redefine the relevant range. Sunk costs are historic and do not change with current or future activity.