This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
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:
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"