QS Study

Step Variable Cost

The step-variable costs are basically fixed within a narrow range but distinct increase when there are volume increases. It is a cost that usually varies with the level of activity, but which tends to be incurred at certain discrete points and to involve large changes in amounts when such a point is reached.

A resource that is obtainable only in large chunks (such as maintenance workers) and whose costs increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost. For example, depreciation on delivery trucks is a fixed cost within a certain volume of deliveries. When the volume of deliveries exceeds the standard level of deliveries more trucks are purchased and depreciation increases. Once depreciation expense has increased it remains fixed until the volume of deliveries changes again and more trucks are purchased.