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# Semi Variable Costs

Modified on 2009/10/14 10:43 by tmkern Categorized as Uncategorized
Variable vs Fixed Cost
Absorption vs Variable Costing
Product Costs vs Period Costs
Sunk Costs
How to Estimate Expenses for an Annual Budget

# Semi Variable Costs¶

Semi-variable costs are costs that include both a fixed and a variable component. Semi-variable costs are also called mixed costs.

Semi-Variable Cost Example 1

Here is an example of a semi-variable cost. Let’s say you subscribe to a phone service that charges \$40 dollars per month, plus \$0.10 per minute for each additional minute beyond 500 minutes per month.

If you talk for less than 500 minutes per month, the cost is \$40 dollars per month. Beyond 500 minutes, the cost increases. This is an example of a semi-variable cost. The flat rate of \$40 dollars for 500 minutes is the fixed cost component. The additional \$0.10 per minute for each additional minute beyond 500 minutes is the variable cost component.

Semi-Variable Cost Example 2

Here is an example of a slightly different type of semi-variable cost. Let’s say a manufacturing company has an electric bill that uses semi-variable cost, including a fixed cost component and a variable cost component.

The electric company charges the manufacturing company a flat monthly rate of \$300 dollars per month for basic electricity service, and then charges \$0.015 per kilowatt hour (kwh). In this example, the flat rate of \$300 dollars per month is the fixed cost component and the \$0.015 per kwh is the variable cost component.

If the manufacturing company uses 50,000 kwhs of electricity in a particular month, its electric bill would be \$1,050 dollars. (\$1,050 = \$300 + (\$0.015 x 50,000kwhs)). And if the manufacturing company uses 100,000 kwhs of electricity the following month, its electric bill would be \$1,800 dollars. (\$1,800 = \$300 + (\$0.015 x 100,000kwhs)).

Accounting Treatment

Cost accountants typically separate semi-variable costs into their two distinct components – the fixed cost component and the variable cost component – when dealing with semi-variable costs. The fixed cost component is treated separately as a fixed cost; the variable cost component is treated separately as a variable cost. This may cause a differentiation of cost that does not reflect economic reality, but it makes it easier to handle and examine the effects of semi-variable costs.

Source:

Barfield, Jesse T., Michael R. Kinney, Cecily A. Raiborn. “Cost Accounting Traditions and Innovations,” West Publishing Company, St. Paul, MN, 1994.