Stepped Cost in Rental Agreement

Steps:

• Base rental is $1000 for up to 20 miles, a fixed allowance per year.
• Exceeding 20 miles triggers a flat $5000 additional charge, regardless of excess amount.
• Cost stays constant within the 20-mile band but jumps discretely beyond it.
• This pattern matches stepped costs, which remain fixed in intervals and increase in steps at thresholds.

Why C is correct:

• Stepped costs are fixed within activity bands but rise abruptly at specific levels, as defined in cost accounting; here, the $5000 jump at 20 miles exemplifies this.

Why the others are wrong:

• A: Fixed costs remain unchanged regardless of activity; this cost alters upon mileage exceedance.
• B: Semi-variable costs combine a fixed base with proportional variable elements; no proportional change occurs here.
• D: Variable costs fluctuate directly with activity volume; this adds a fixed lump sum, not proportional.

Final answer: C