Step Costs - Managerial Accounting

The video tutorial explains step costs, which are costs that remain fixed within a certain range of activity but increase to a higher level once the upper limit of that range is exceeded. An example is given using a preschool class, where a teacher can handle up to 15 students, but a 16th student requires hiring an additional teacher, thus increasing costs. The concept is visually represented as steps on a graph, where each step represents a range of activity with a fixed cost, and the cost increases as the activity surpasses each threshold.

What are step costs and how do they behave within a limited range of activity?

Explain the example of a preschool class in relation to step costs.

How does the introduction of additional students affect the costs in a preschool setting?

Describe how the graph representing step costs would look.

What happens to the cost level when the threshold of activity is exceeded?