Adult-Gerontology Clinical Nurse Specialist (CNS) Practice Exam

Costs that vary in the relevant range but not evenly are known as which type of costs?

1. Relevant costs

2. Mixed costs

3. Step-fixed costs

4. Impact costs

The correct answer is: Step-fixed costs

Step-fixed costs are defined as costs that remain fixed over a certain range of activity but will increase in discrete steps when the level of activity exceeds certain thresholds. This means that within the relevant range, costs do not vary smoothly. Instead, they stay constant until the level of activity hits a specific point, at which point the cost increases significantly. For example, a company might incur a set amount for staffing at a specific level of production. However, once production surpasses that level, the company may need to hire additional staff, leading to a sudden increase in labor costs. This characteristic of being fixed within a certain range but increasing in steps illustrates why step-fixed costs fit the definition provided in the question. Understanding this concept is important in cost accounting and budgeting, as it aids in predicting how costs will behave with changes in production levels. The nuances of how costs behave within different activity ranges are crucial for effective financial planning and management.