Question

Explain step costs and mixed costs. Is it possible to classify these as variable or fixed?

Is it possible for a particular cost to be classified as variable in one decision making situation and fixed in another situation? Explain.

Answer 1

SOLUTION

Step cost - These are expenses which remain constant upto a particular level of activity but increases or decreases when the given activity level is crossed . So this cost changes disproportionately with change in activity levels .

Mixed cost - It is cost thave have elements of both fixed cost and variable cost .So a portion of this cost known as fixed cost will not change with change in production level but other part known as variable cost changes proportionately with change in production .

It is not possible to classify step cost and mixed cost as fixed cost and varible cost because these both contains element of fixed cost and variable cost .

No it is not possible to classify a particular cost as fixed or variable according to situation this is because of inherent nature of both the cost , fixed cost remain constant for any level of production whereas variable cost changes proportionaely with change in level of production .

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