Question

With reference to cost, on the basis of behaviour explain:

Semi-variable Cost

Answer 1

Semi-variable costs (also known as semi-fixed or mixed costs) are those that alter in response to changes in production volume but not in direct proportion. They are made up of both fixed and variable elements.

Key features:

• The fixed component represents the cost of providing capacity (which must be expended even with no activity).
• The variable component reflects the cost of employing capacity.
• They are neither perfectly fixed nor purely variable.

Examples:

1. Telephone bill: Fixed monthly rent + Variable call charges.
2. Electricity bill: Fixed minimum charge + Variable consumption charges.