ExpertEasy2 marksMultiple Choice
ACCA · Question 03 · A. The nature, source and purpose of management information
An offshore wind farm incurs a maintenance cost that remains constant up to 50 turbine inspections per month. If more than 50 inspections are required, an additional specialized crew must be hired, causing the total maintenance cost to jump to a higher flat rate up to 100 inspections.
How should this cost be classified?
An offshore wind farm incurs a maintenance cost that remains constant up to 50 turbine inspections per month. If more than 50 inspections are required, an additional specialized crew must be hired, causing the total maintenance cost to jump to a higher flat rate up to 100 inspections.
How should this cost be classified?
Answer options:
A.
Variable cost
B.
Semi-variable cost
C.
Stepped fixed cost
D.
Curvilinear cost
How to approach this question
Visualize the cost graph. It is flat, then jumps up vertically, then is flat again. This is a step function.
Full Answer
C.Stepped fixed cost✓ Correct
Stepped fixed costs are fixed within a specific range of activity (e.g., 0-50 inspections). Once activity exceeds this range, the cost steps up to a new, higher fixed level (e.g., hiring an additional crew).
Common mistakes
Confusing stepped fixed costs with semi-variable costs. Semi-variable costs increase continuously with each additional unit, whereas stepped costs remain flat between thresholds.
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