Mixed costs are the costs that consist of both fixed and variable costs. The fixed component does not change with the level of production activity. On the contrary, the variable cost changes with the level of production. Generally, the variable cost varies directly with the level of output. Thus, mixed costs cannot be classified purely as fixed costs or variable costs.
Step costs remain set until a certain production level but increase or decrease after that threshold is crossed. This change may follow a disproportionate pattern. When depicted on a graph, it is shown in the form of steps. It is because the price fluctuates in a stair-step sequence, often horizontally, then vertically, then horizontally, and so on. It means that for a given level of operational activity, the business will incur a fixed cost. But as the activity level varies, the cost to accommodate the additional activities may increase or decrease disproportionately.
The business strives in the market through product diversification and innovation. The companies always try to develop a new product or introduce different services to their customers. The product diversification had its limit, so the company had to enter into research to develop a new product by the research and development department. This is an ongoing process to innovate something new. The In-process Research and Development are treated as part of intangible assets. The FASB research and development can separately be identified as intangible assets. These are the part of the financial statements. IPRD is also applicable to the service sectors. The FASB states that the research and development cost related to software can be treated amortization.
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