Semi Variable Cost

According to every single system that prevails in the world, the cost of any item is subjected to various changes. It is dependent on the factors that could cause the change in the price. This arises from the concept of cost variability. In this article, students will get to know more about fixed variable and semi variable cost.

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Fixed Variable And Semi Variable Cost

There are different costs for various items that are presented in the market for sale. Some of the costs of the items are subjected to changes. These changes give rise to the concept of variable pricing. There are three different types of cost. These are fixed cost, variable cost, and semi variable cost. Details about all these different types of costs are provided below. 

Fixed Cost

The cost of an item that is not subject to any changes during a short period of time is known as a fixed cost. This can be irrespective of the production volume as well as the sales of the item. The cost generally is a constant for the basic operations of the business. It is also known as basic operating cost. This cost is pretty crucial and cannot be avoided for sure. Fixed cost value can be used for determining the product cost in general. It can also tell people about the losses and profits that are incurred by the business. 

Here is an example of fixed costs. A person is living in a place for rent. The price of the rent for that particular place is negotiated and placed on the rent agreement. This cost of rent will not change during the period in which the person will be living there. Another example of fixed cost is the property tax that people have to provide. These types of costs are incurred usually at some regular intervals. Another term for fixed costs is period costs. 

Variable Cost

Variable costs can be defined as the costs that tend to vary a lot according to the variations in the output of the organization. The number of goods and services that are produced by the organization can also be a factor in deciding the variable cost. In layman's terms, it can be said that variable costs tend to vary according to the variations in the output.

With the increase in sales, the variable cost might also change. Variable cost is pretty different than the semi variable cost example. An example of variable cost can be provided with a bakery where the price of flour tends to change. Other businesses also have examples of variable costs that are determined by the output that the business has or the raw materials that it produces. 

It can be seen from the above-mentioned examples that variable costs are subject to a lot of changes. These changes are proportional to the change in the output or the production volume of the organization or the company. Hence, it can be said without a single speck of doubt that the prices or costs that tend to change proportionally with the units that are produced can be called variable costs. Direct expenses, direct materials, direct labors, etc. are some examples of variable costs. 

In the next section, students will learn about the semi variable cost. 

Semi-Variable Cost

When it comes to semi-variable cost, it has elements from both fixed cost and variable cost. So, the components of fixed as well as variable costs combine to form a semi variable cost example. In this case, the cost of an item or a product will remain the same or fixed up to a certain extent of production level. In case the volume of production changes after that level, the cost of the item will also end up changing. The portion that remains as a fixed cost can be referred to as the base level price and the portion that varies after the crossing of the production volume is being referred to as the additional cost. This additional cost might change according to the changes in the volume of production. 

Semi-Variable Cost Formula 

The semi variable cost formula is mentioned right here. With the help of this formula, one will be able to decide the semi-variable cost in the best way. 

Cost (C) = x + Ny; where ‘N’ can be deemed as the number of units that anyone has consumed. This excludes the 1 GB that cost the person x rupees.

There are two different terms included in the formula for semi variable expenses. We have the fixed cost part and the variable cost part. 

Semi-variable cost = Fixed cost + variable cost

Variable cost per unit = change in cost/change in output

For that reason, the semi-variable cost can also be called semi-fixed or mixed cost. 

Fixed variable and semi variable cost are the basic three types of costs that are associated with the price of a product. These three types have distinct properties and characteristics.