A step cost functions indicates that there are
A) costs that remain the same over various ranges of activity but increases by discrete amounts as the level of activity increases
B) greater proportions of fixed costs than variable costs at lower levels of activities
C) increases in the number of units produced during the each month of the period
D) strong relationships between fixed costs and variable costs

Question

Quizplus · Accepted Answer

A step cost function is characterized by having costs that remain constant over a certain range of activity but then increase by a discrete amount when activity levels exceed a certain threshold. This threshold is referred to as the "step." Option B is incorrect because a step cost function does not necessarily have a higher proportion of fixed costs at lower activity levels. Option C is incorrect because an increase in the number of units produced during each month does not necessarily indicate a step cost function. Option D is incorrect because, while fixed and variable costs may be present in a step cost function, there is not necessarily a strong relationship between them.

A Step Cost Functions Indicates That There Are