Revenue, often referred to as gross sales or turnover, is the total amount of income generated by the sale of goods or services related to the company's primary operations. It is calculated by multiplying the unit selling price by the total number of units sold during a specific period. This is the top-line figure on an income statement.

A step cost function represents costs that remain constant over a specific range of activity but increase by a discrete amount when the activity level exceeds that range. While the question describes a fixed cost behavior, within the provided options, 'step cost functions' is the standard terminology used to describe cost functions that change in discrete increments rather than continuously.

Over longer time horizons, more costs tend to become variable because management has greater flexibility to adjust resources, capacity, and contracts. In the short term, many costs are fixed due to existing commitments, but these constraints diminish as the planning horizon extends.

The assumption of normality of residuals is a fundamental requirement in regression analysis. It ensures that the errors (residuals) are randomly and normally distributed around the regression line, indicating that the model has captured the underlying trend effectively without systematic bias. This assumption is crucial for the validity of hypothesis testing and the reliability of the regression results.

Merchandising companies act as intermediaries in the supply chain by purchasing finished goods from manufacturers or wholesalers and reselling them to customers without changing the form of the product. Distribution companies are a primary example of this sector, as they focus on the logistics and sale of existing inventory.

In cost accounting, machine hours are a frequently used allocation base because they provide a direct measure of resource consumption for automated production processes. By using machine hours, managers can more accurately assign overhead costs to products based on the time they spend on the machines, ensuring a more precise cost per unit.

The fixed manufacturing cost rate is determined by dividing total budgeted fixed manufacturing costs by a chosen denominator level. Capacity utilization, representing the volume of production activity, is the standard denominator used to allocate these fixed costs to individual units of production.

A static budget variance is the difference between the actual results and the original budget prepared at the beginning of the period. Because the static budget is based on a single, fixed level of activity, this variance captures both the impact of changes in volume and changes in operational efficiency, providing a high-level overview of performance against the initial plan.

The budgeted fixed manufacturing cost per unit is derived by dividing the total budgeted fixed manufacturing overhead by the total number of units planned for production. In this calculation, $35,000 divided by 7,000 units results in a cost of $5 per unit. This metric helps management understand the fixed cost burden allocated to each individual unit produced.

For a cost model to be useful, the relationship between the independent variable (cost driver) and the dependent variable (total cost) must be economically plausible. This means that the observed correlation must align with logical business operations and economic theory. Even if a statistical relationship exists, it lacks practical utility if it does not reflect a genuine cause-and-effect relationship within the business environment, ensuring that the model provides actionable insights.