What is a step fixed cost?

What is a step fixed cost?

• A. Costs that vary directly with output.
• B. Costs fixed within a certain range of activity but change outside that range.
• C. Costs that are always fixed regardless of volume.
• D. Costs that behave unpredictably.

Answer: (B)

Step fixed costs behave in a staircase way: they stay constant within a defined level of activity, but when you move beyond certain output levels, the total cost jumps to a new fixed amount. This happens because expanding capacity or adding resources is required only after hitting a threshold, so the cost remains flat until that point and then steps up. A common example is needing an extra supervisor or machine capacity only after production passes a set volume. That pattern—constant within a range, changing when activity goes outside that range—is what defines step fixed costs. It’s not purely fixed across all activity (that would never change), nor purely variable (that would rise continuously with output), and it isn’t random.

Step fixed costs behave in a staircase way: they stay constant within a defined level of activity, but when you move beyond certain output levels, the total cost jumps to a new fixed amount. This happens because expanding capacity or adding resources is required only after hitting a threshold, so the cost remains flat until that point and then steps up. A common example is needing an extra supervisor or machine capacity only after production passes a set volume. That pattern—constant within a range, changing when activity goes outside that range—is what defines step fixed costs. It’s not purely fixed across all activity (that would never change), nor purely variable (that would rise continuously with output), and it isn’t random.