Which example is NOT a step cost?
A) When oil and gas exploration activity reaches a certain level in a given area, a company leases an additional rig. The lease cost of the rigs is a step cost.
B) When ten nurses are added to a shift, a nursing supervisor is also added to the shift. The salaries of the nursing supervisors are a step cost.
C) When a telemarketing company adds ten workers to a shift, a supervisor is also added to the shift. The salaries of the supervisors are a step cost.
D) When a manufacturing company ceases production, a skeleton crew of maintenance workers continues to work, but the rest are terminated. When production resumes, maintenance workers are rehired in direct proportion to the amount of production. The wages of the maintenance workers are a step cost.

Question

Quizplus · Accepted Answer

Step costs change at certain points but remain constant within a certain level of activity. Choices A, B, and C are examples of step costs because costs increase in steps with changes in activity level. Choice D describes a variable cost, where costs vary directly with the level of production, not a step cost.

Which Example Is NOT a Step Cost