ExpertEasy2 marksMultiple Choice
ACCA · Question 01 · The nature, source and purpose of management information
SECTION A
NovaTech, a cloud software startup, pays a monthly server hosting fee of $5,000 which covers up to 10,000 active users. For every additional 1,000 users, an extra capacity block must be purchased for $800.
How should this cost be classified according to its behavior?
SECTION A
NovaTech, a cloud software startup, pays a monthly server hosting fee of $5,000 which covers up to 10,000 active users. For every additional 1,000 users, an extra capacity block must be purchased for $800.
How should this cost be classified according to its behavior?
Answer options:
A.
Semi-variable cost
B.
Step-fixed cost
C.
Pure variable cost
D.
Fixed cost
How to approach this question
Analyze the cost behavior: it is flat up to a threshold, then jumps by a set amount for a new range. This is the definition of a step-fixed cost.
Full Answer
B.Step-fixed cost✓ Correct
Step-fixed costs are fixed within a specific range of activity but increase to a higher level once that upper limit is breached, forming a 'step' on a graph.
Common mistakes
Confusing step-fixed with semi-variable. Semi-variable has a fixed base and a continuous variable rate per single unit.
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