The monthly cost of supervising a production line is £8,000 for up to 10,000 units. If output exceeds 10,000 units, a second supervisor is needed and the cost rises to £16,000 for up to 20,000 units. How is this cost described?
Answer and explanation
Correct answer: C. A stepped fixed cost
- Step 1: Within each band the cost is constant, so it is fixed in the short run.
- Step 2: It then jumps at a threshold, which is the definition of a stepped fixed cost.
Answer
A stepped fixed cost.
Why not the others: A semi-variable cost: A semi-variable cost has a fixed element plus a variable element that changes with every unit, which is not the pattern here. A variable cost: A variable cost changes in direct proportion to each unit, and this cost is constant within each band. A direct material cost: Supervision is a labour-related indirect cost and is not material.
Practise more Management information and cost classification.
Free questions with an explanation for every one, and full timed ACCA Applied Knowledge (BT, MA, FA) mock tests.
More Management information and cost classification questions
- Which of the following best describes the purpose of management accounting information?
- A company records the cost of a delivery vehicle's fuel that varies with distance travelled. How is this cost classified in terms of behavio…
- A company is deciding whether to accept a special order. An earlier purchase of machinery for £50,000 is already paid for and cannot be sold…
- A company can use material that it already owns, bought for £6 per kg, in a special order. It has no other use for it except selling it as s…
- Which one of the following is an example of a direct cost of producing a wooden table?
- The following costs were incurred at two activity levels: 4,000 units cost £36,000 and 7,000 units cost £48,000. Using the high-low method…