Semi-Variable Cost

What is a Semi-Variable Cost?

A semi-variable cost, otherwise called a semi-fixed cost or a mixed cost, is a cost made out of a combination of both fixed and variable parts. Costs are fixed for a set level of production or consumption, and become variable after this production level is surpassed. In the event that no production happens, a fixed cost is in many cases actually incurred.

Figuring out Semi-Variable Costs

The fixed portion of a semi-variable cost is incurred regardless of the activity volume, while the variable portion happens as a function of the activity volume. Management might break down different activity levels by controlling the activity level to change the variable costs. A semi-variable cost with lower fixed costs is great for a business in light of the fact that the break-even point is lower.

Generally accepted accounting principles (GAAP) don't need a qualification among fixed and variable costs. These costs are not recognized on an organization's financial statements. Thusly, a semi-variable cost might be classified into any expense account, for example, utility or rent, which will appear on the income statement. A semi-variable cost and analysis of its parts is a managerial accounting function for internal utilize as it were.

Instances of Semi-Variable Costs

The fixed portion of a semi-variable cost is fixed up to a certain production volume. This means semi-variable costs are fixed for a scope of activity and may change past that for different activity levels. For instance, power costs for a production facility might be $1,000 each month just to keep the lights on and building functioning at a negligible level. Be that as it may, on the off chance that production multiplied and extra machines are run utilizing greater power, the cost might be $1,800 for the month.

Extra time on a production line has semi-variable highlights. In the event that a certain level of labor is required for production line operations, this is the fixed cost. Any extra production volume that requires additional time brings about variable expenses dependent on the activity level. In a common cellphone billing contract, a month to month flat rate is charged notwithstanding overage charges in light of unnecessary bandwidth utilization. Likewise, a sales rep's salary normally has a fixed part, like a salary, and a variable portion, like a commission.

A business encounters semi-variable costs comparable to the operation of fleet vehicles. Certain costs, for example, month to month vehicle loan payments, insurance, depreciation, and licensing are fixed and independent of use. Different expenses, including gas and oil, are connected with the utilization of the vehicle and mirror the variable portion of the cost.