Page 74 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 4

3.3 Stepped fixed costs

This is a type of fixed cost that is only fixed within certain levels of
activity. Once the upper limit of an activity level is reached then a new
higher level of fixed cost becomes relevant.

Total
cost $
Relevant
ranges

3
2

1

Activity
level

Test your understanding 9

Consider the following costs. Which would be classified as stepped costs?
Select all that apply.

(a) The cost of materials is $3 per kg for purchases up to 10,000 kg. From
10,001 kg to 15,000 kg the cost is $2.80 per kg. Thereafter the cost is
$2.60 per kg.

(b) The cost of supervisory labour is $18,000 per period for output up to
10,000 units. From 10,001 units to 15,000 units the cost is $37,000 per
period. Thereafter the cost is $58,000 per period.

(c) The cost of machine rental is $4,500 per period for output up to 3,000
units. From 3,001 units to 6,000 units the cost is $8,700 per period.
Thereafter the cost is $12,200 per period.

(d) The mileage charge for a rental car is $0.05 per miles up to 400 miles.
From 401 miles to 700 miles the charge is $0.07 per mile. Thereafter the
cost is $0.08 per mile.

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