Semi-Variable Cost

First make sure you understand the concept behind the terms Fixed Cost and Variable Cost, then ask “What do you mean by that?”

The terms Fixed Costs and Variable Costs look at the behavior of the costs - do the costs vary with Sales Volume?

Semi-Variable costs do vary with Sales Volume but they do so in ‘steps’.

There are 2 kinds of Semi-Variable Costs:

The first type of Semi-Variable Cost remains constant over a range of production and then steps up a level (also known as stepwise variable). This could be due to adding a new production machine (maintenance costs will increase) or adding a new location to a retail chain (rent will increase).  Depreciation is a kind of Semi-Variable Cost.

The second type of Semi-Variable Cost starts at a base level in a fixed manner, then increases in a variable manner. An example is a power bill, where there is a monthly connection fee and then a variable cost for usage.

Semi-Variable Costs are Operating Expenses. The reporting of these costs will vary by company - some or all of these costs can be:

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