Semi-variable costs

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Definition

Some costs cannot be classified as either fixed or variable. These costs are known as semi-variable costs and they contain a fixed and a variable cost element.  These costs are also called mixed costs or semi-fixed costs. These costs may change but not in direct proportion to changes in activity.

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Semi-variable cost is one which varies with every increase or decrease in the volume of production but does not vary proportionately; at the same time it cannot remain sationery at all times. This is also known as semi-fixed cost.

Explanation

Semi-variable costs are those which have the characteristics of fixed costs and variable costs, both. These costs vary with production but not in direct proportion to volume. Although semi-variable costs are neither wholly fixed not wholly variable in nature, they must ultimately be separated into fixed and variable components for the purpose of planning and control.

The fixed part of the semi-variable cost usually represents a minimum fee for making a particular item or service available. The variable portion is the cost charged for actual using the service.

Examples

Examples of semi-variable costs include repairs, monthly telephone charges, indirect materials, indirect labor, fuel and power. Telephone charges, for example, are made up of a service charge plus extra charges for extra telephones and long-distance calls.

The service charges are fixed but the cost of additional telephones and long-distance charges are variable because they depend on monthly use. Maintenance is another good example of semi-variable costs. Some maintenance is required to prevent the deterioration of buildings and equipment while additional maintenance is required as the use of these asset increases.

Also Check:  Cost Center and Cost Unit

Thus semi-variable costs may be broken down into their respective fixed and variable cost parts for purposes of cost planning and control.

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