Supervisory Salaries as Stepped Costs in Capacity Expansion

Steps:

• Identify current operation: business at full capacity, so existing supervisors handle maximum output without additional hires.
• Analyze expansion impact: increasing capacity requires hiring an extra supervisor, adding a fixed salary amount.
• Classify cost behavior: salaries stay constant within current capacity but rise discretely with new capacity thresholds.
• Determine type: this stepwise increase matches stepped cost definition.

Why C is correct:

• Stepped costs remain fixed over a range of activity but increase in steps when crossing capacity thresholds, as here with the additional supervisor for expansion.

Why the others are wrong:

• A: Fixed costs remain unchanged regardless of activity or capacity changes, unlike this discrete addition.
• B: Semi-variable costs combine a fixed base with a variable portion tied to output, but salaries lack output proportionality.
• D: Variable costs fluctuate directly with production volume, not in fixed jumps for capacity expansion.

Final answer: C