A company needs one supervisor for every 40 employees. In this case, supervision is a ______ cost.

A company needs one supervisor for every 40 employees. In this case, supervision is a ______ cost.

• A. Fixed
• B. Variable
• C. Mixed
• D. Step

Answer: (D)

Costs that change in distinct jumps as activity changes are step costs. In this scenario, the number of supervisors depends on headcount in whole multiples of 40: you need one supervisor for up to 40 employees, two supervisors for 41–80 employees, three for 81–120, and so on. The total supervision cost stays flat within each range and then jumps up when you cross the next 40-employee threshold. That staircase behavior is the hallmark of a step cost. It isn’t fixed, because the cost changes with headcount; it isn’t variable, because it doesn’t rise in a smooth per-employee rate; and it isn’t mixed, since it doesn’t consist of a gradual blend of fixed and variable components within the same range.

Costs that change in distinct jumps as activity changes are step costs. In this scenario, the number of supervisors depends on headcount in whole multiples of 40: you need one supervisor for up to 40 employees, two supervisors for 41–80 employees, three for 81–120, and so on. The total supervision cost stays flat within each range and then jumps up when you cross the next 40-employee threshold. That staircase behavior is the hallmark of a step cost. It isn’t fixed, because the cost changes with headcount; it isn’t variable, because it doesn’t rise in a smooth per-employee rate; and it isn’t mixed, since it doesn’t consist of a gradual blend of fixed and variable components within the same range.