Unformatted text preview: ss of the number of units produced or
other volume of activity, the amount of rent the company pays will remain the same. Of course, when the relevant
range is exceeded, because the organization has grown so large that it needs to rent new facilities, even this cost will
Step-function costs are similar to fixed costs, except they have a much smaller relevant range. As such, they do
not change in a smooth fashion, but are added in “lumps,” or “steps.” The result is that, graphically, they take the
form shown in Quadrant B, where the dotted lines represent discontinuous jumps.
A good example of a step-function cost in most organizations is supervision. As the number of workers increases, supervisory personnel must be added. Since it is difficult for most organizations to add part-time supervisory help, supervisory costs will tend to behave in a step-function fashion.
Variable costs are those costs that behave in a roughly linear fashion in accordance with changes in volume.
That is, as volume increases, total variable costs will...
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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control