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. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of ...
  5. Explicit Cost

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

    A cost that does not change with an increase or decrease in the ...
Related Articles
  1. What are Business Ethics?
    Investing

    What are Business Ethics?

  2. What is Globalization?
    Investing

    What is Globalization?

  3. How a Monopoly Works
    Economics

    How a Monopoly Works

  4. Using Appreciative Inquiry To Solve ...
    Investing Basics

    Using Appreciative Inquiry To Solve ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center