Difference Wiki

True Variable Cost vs. Step Variable Cost: What's the Difference?

Edited by Huma Saeed || By Sumera Saeed || Published on December 12, 2023
True variable costs vary directly with production volume, while step variable costs change in steps with production levels.

Key Differences

True variable costs change in direct proportion to production levels, whereas step variable costs change in fixed increments or steps as production levels reach certain thresholds.
Sumera Saeed
Dec 12, 2023
True variable costs show a continuous change, increasing or decreasing smoothly with production levels. In contrast, step variable costs remain constant over a range and then jump to a new level.
Sumera Saeed
Dec 12, 2023
An example of a true variable cost is raw material costs, which vary directly with the amount produced. Step variable costs, like labor costs, might remain constant until a new production level necessitates additional staffing.
Huma Saeed
Dec 12, 2023
In budgeting, true variable costs are more predictable and linear, while step variable costs require careful planning for the points at which costs will increase.
Sumera Saeed
Dec 12, 2023
True variable costs can be calculated per unit of production, offering a straightforward analysis. Step variable costs need a range-based approach, considering the levels at which costs change.
Aimie Carlson
Dec 12, 2023
ADVERTISEMENT

Comparison Chart

Relation with Production

Changes in direct proportion to production level
Changes in steps at certain production thresholds
Sumera Saeed
Dec 12, 2023

Nature of Change

Continuous
Discontinuous, in fixed increments
Sumera Saeed
Dec 12, 2023

Predictability

More predictable and linear
Less predictable, requires planning for cost jumps
Huma Saeed
Dec 12, 2023

Example

Raw material costs
Labor costs in relation to production tiers
Sumera Saeed
Dec 12, 2023

Budgeting and Cost Analysis

Calculated per unit, easier to analyze
Requires analysis of ranges and thresholds
Aimie Carlson
Dec 12, 2023
ADVERTISEMENT

True Variable Cost and Step Variable Cost Definitions

True Variable Cost

Calculated on a per-unit basis.
The cost of ink per printed book is a true variable cost.
Harlon Moss
Nov 28, 2023

Step Variable Cost

Remains constant over a range, then jumps.
The cost of supervisory staff increases only after reaching a certain production threshold, a step variable cost.
Huma Saeed
Nov 28, 2023

True Variable Cost

Costs that vary directly with production.
The cost of fabric for each shirt made is a true variable cost.
Sumera Saeed
Nov 28, 2023

Step Variable Cost

Requires planning for thresholds.
The addition of new delivery vehicles for every 1,000 orders is a step variable cost.
Sumera Saeed
Nov 28, 2023

True Variable Cost

Changes linearly with production levels.
As production doubles, the true variable cost for raw materials also doubles.
Sumera Saeed
Nov 28, 2023

Step Variable Cost

Not directly proportional to production.
The cost of technical support staff, added in tiers based on production volume, is a step variable cost.
Harlon Moss
Nov 28, 2023

True Variable Cost

Directly proportional to output.
The more units produced, the higher the true variable cost for materials.
Sumera Saeed
Nov 28, 2023

Step Variable Cost

Involves thresholds at which costs change.
Maintenance costs increase only after every 10,000 units, illustrating step variable costs.
Sumera Saeed
Nov 28, 2023

True Variable Cost

Reflects the actual usage of resources.
Electricity costs for running machinery are a true variable cost in manufacturing.
Janet White
Nov 28, 2023

Step Variable Cost

Costs that change in fixed steps with production levels.
Hiring an additional worker after every 500 units produced is a step variable cost.
Sumera Saeed
Nov 28, 2023

FAQs

How does a true variable cost behave with increased production?

It increases linearly.
Sumera Saeed
Dec 12, 2023

What is a step variable cost?

A cost that changes in fixed steps at certain production levels.
Huma Saeed
Dec 12, 2023

Can true variable costs be easily predicted?

Yes, due to their direct relation with production.
Sumera Saeed
Dec 12, 2023

Are step variable costs predictable?

Less so, as they depend on production thresholds.
Sumera Saeed
Dec 12, 2023

How do true variable costs impact budgeting?

They allow for more straightforward budgeting per unit.
Janet White
Dec 12, 2023

What is an example of a true variable cost?

Raw materials cost.
Sumera Saeed
Dec 12, 2023

What is a true variable cost?

A cost that varies directly with production volume.
Sumera Saeed
Dec 12, 2023

How does a step variable cost behave with increased production?

It remains constant until a threshold is reached, then jumps.
Harlon Moss
Dec 12, 2023

How do step variable costs impact budgeting?

They require planning for cost jumps at certain points.
Janet White
Dec 12, 2023

Is electricity a true variable cost in manufacturing?

Yes, as it varies with production levels.
Harlon Moss
Dec 12, 2023

What is an example of a step variable cost?

Labor costs that increase at certain production levels.
Sumera Saeed
Dec 12, 2023

Is hiring additional staff a step variable cost?

Yes, if it occurs at specific production intervals.
Janet White
Dec 12, 2023

Can step variable costs be avoided?

Not easily, as they are linked to necessary production increases.
Sumera Saeed
Dec 12, 2023

Do true variable costs have thresholds?

No, they change continuously with production.
Janet White
Dec 12, 2023

Are step variable costs more common in certain industries?

Yes, especially in those with tiered production processes.
Janet White
Dec 12, 2023

Do step variable costs have thresholds?

Yes, they change at specific production points.
Sumera Saeed
Dec 12, 2023

How are true variable costs calculated?

Per unit of production.
Sumera Saeed
Dec 12, 2023

How are step variable costs analyzed?

By considering production ranges and thresholds.
Sumera Saeed
Dec 12, 2023

Can true variable costs fluctuate greatly?

They fluctuate in proportion to production volume.
Janet White
Dec 12, 2023

Are true variable costs common in all industries?

Yes, in most industries that involve production.
Aimie Carlson
Dec 12, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Huma Saeed
Huma is a renowned researcher acclaimed for her innovative work in Difference Wiki. Her dedication has led to key breakthroughs, establishing her prominence in academia. Her contributions continually inspire and guide her field.

Trending Comparisons

Popular Comparisons

New Comparisons