• 1 Marks

MI – May 2018 – L1 – SA – Q5 – Cost Classifications

Definition of stepped costs.

Which of the following statements correctly defines stepped costs?
A. Costs which occur at certain times or seasons during the year
B. Costs which increase with each succeeding month
C. Costs which are semi-fixed or semi-variable
D. Costs which remain fixed over a given range of activity but jump to a higher level once the activity increases beyond the range
E. Costs which are incurred at various levels of a company’s hierarchy

D. Costs which remain fixed over a given range of activity but jump to a higher level once the activity increases beyond the range
Explanation: Stepped costs, or step-fixed costs, remain constant within a specific range of activity but increase to a new level once production surpasses a certain threshold. The answer is correct because it clearly outlines this characteristic of stepped costs, which differentiates them from traditional fixed and variable costs.

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