Question

Each of Boggart’s production managers (annual salary cost, $45,000) can oversee 60,000 machine hours of manufacturing activity. Thus, if the company has 50,000 hours of manufacturing activity, one manager is needed; for 75,000 hours, two managers are needed; for 125,000 hours, three managers are needed; and so forth. Boggart’s salary cost can best be described as a:
1.variable cost.
2.semivariable cost.
3.step-variable cost.
4.fixed cost.
5.step-fixed cost.

Answer 1

Answer:

5.step-fixed cost.

Explanation:

A fixed cost which does not change up to a certain level of activity and changes is when a level of activity is achieved. This cost increase on specific point and then remains fix and this process may repeat. In this question Salaries of oversee mangers are the step-fixed cost. Because it remained same until the Manufacturing hours goes upto 50,000, increases at this point and then remains same upto 75,000 and so on.