Step Costs

AAA

DEFINITION of 'Step Costs'

Business expenses that are constant for a given level of activity, but increase or decrease once a threshold is crossed. Step costs are those costs that change when a business' production levels increase or decrease. When depicted on a graph, these types of expenses will be represented by a stairstep pattern.

INVESTOPEDIA EXPLAINS 'Step Costs'

For example, a coffee shop might be able to serve 30 customers an hour with one employee. If the shop receives anywhere from zero to 30 customers per hour, it will only need to pay the cost of having one employee. If the shop begins receiving 31 or more customers per hour, it must hire a second employee, increasing its costs of doing business.



RELATED TERMS
  1. IRS Publication 535 - Business ...

    A document published by the Internal Revenue Service (IRS) that ...
  2. Discretionary Expense

    A discretionary expense is a cost which is not essential for ...
  3. Business Interest Expense

    The cost of interest that is charged on business loans used to ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  5. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  6. Implicit Cost

    A cost that is represented by lost opportunity in the use of ...
Related Articles
  1. Professionals

    Master Limited Partnership (MLP)

    A master limited partnership, also referred to as an MLP, is a publicly traded partnership, where the limited partnership interests are traded much like shares in a corporation.
  2. Professionals

    Human Resource Planning

    Just as companies must plan ahead to ensure a steady supply of raw materials, machinery and office space, they must also plan ahead to maintain a steady supply of quality employees. Human resource ...
  3. Professionals

    Value Proposition

    A value proposition is a company’s promise to its customers of a unique and relevant benefit. The value proposition is often the heart of a company’s advertising campaigns.
  4. Fundamental Analysis

    Work In Progress (WIP)

    Work in progress, also know as WIP, is an asset on the company balance sheet. WIP is the accumulated costs of unfinished goods that are currently in the manufacturing process.
  5. Fundamental Analysis

    Capital Budgeting

    Capital budgeting is a planning process used by companies to evaluate which large projects to invest in, and how to finance them. It is sometimes called “investment appraisal.”
  6. Professionals

    Porter's Five Forces

    Porter’s Five Forces is an analysis scheme created by Harvard Business School professor Michael E. Porter. Using this analysis tool, business managers can gauge the level of competition within ...
  7. Economics

    Can Internet companies be vertically integrated?

    Find out how online businesses are beginning to take advantage of vertical integration for many of the same reasons as traditional businesses.
  8. Professionals

    Understanding Interpersonal Skills

    Interpersonal skills are the social skills people use to interact effectively with other people. A lack of good interpersonal skills may lead to unsuccessful personal relationships, as well as ...
  9. Professionals

    Who Counts as an Entrepreneur?

    An entrepreneur is a person who starts a new business or organization, taking some personal financial risk to do so. He or she may quit a secure job to devote time to starting the new business, ...
  10. Investing

    Understanding Turnover

    Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ...

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center