What is a 'Semi-Variable Cost'

A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a cost composed of a mixture of fixed and variable components. Costs are fixed for a set level of production or consumption and become variable after this production level is exceeded. If no production occurs, a fixed cost is still incurred.

BREAKING DOWN 'Semi-Variable Cost'

The fixed portion of a semi-variable cost incurs repeatedly, while the variable portion occurs as a function of the activity volume. Management may analyze different activity levels by manipulating the activity level to change the variable costs. A semi-variable cost with lower fixed costs is favorable for a business as the breakeven point is lower.

Examples of Semi-Variable Costs

Overtime on a production line has semi-variable features. If a certain level of labor is required for production line operations, this is the fixed cost. Any additional production volume that requires overtime results in variable expenses dependent on the activity level. In a typical cellphone billing contract, a monthly flat rate is charged in addition to overage charges based on excessive bandwidth usage. A business likely experiences a similar structure when charged for utilities. Also, a salesperson’s salary typically has a fixed component such as a salary and a variable portion such as a commission.

A business experiences semi-variable costs in relation to the operation of fleet vehicles. Certain costs, such as monthly vehicle loan payments, insurance, depreciation and licensing, are fixed and independent of usage. Other expenses including gasoline and oil are related to the use of the vehicle and reflect the variable portion of the cost.

Production Volume

The fixed portion of a semi-variable cost is fixed up to a certain production volume. This means certain costs are fixed for a range of activity and may change for different activity levels. For example, rent expense for a production facility may be $2,000 per month. However, if production doubled and an additional facility is rented, the new fixed rent charge may be $3,500. This charge remains fixed even though the dollar amount changed because the production volume was adjusted.

Accounting for Semi-Variable Costs

Generally accepted accounting principles (GAAP) do not require a distinction between fixed and variables costs. These costs are not distinguished on a company’s financial statements. Therefore, a semi-variable cost may be classified into any expense account such as utility or rent. A semi-variable cost and analysis of its components is a managerial accounting function for internal use only.

RELATED TERMS
  1. Operating Cost

    Expenses associated with the maintenance and administration of ...
  2. Semivariance

    A measure of the dispersion of all observations that fall below ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  4. Variable Cost

    A corporate expense that varies with production output. Variable ...
  5. Variable Cost Ratio

    Variable costs expressed as a percentage of sales. The variable ...
  6. Unit Cost

    The cost incurred by a company to produce, store and sell one ...
Related Articles
  1. Investing

    What are Fixed Costs?

    Fixed costs are business expenses that do not change as the level of production goes up or down. They are one of two types of business expense, the other being variable costs. Variable costs ...
  2. Investing

    The Operating Leverage And DOL

    Operating leverage tells investors about the relationship between a company's fixed and variable costs. The higher a company's fixed costs in relation to its variable costs, the greater its operating ...
  3. Investing

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  4. Investing

    Variable Costs

    Variable costs go up when a company produces more goods or services, and go down when it produces fewer goods or services. This is compared to fixed costs, which do not change in proportion to ...
  5. Investing

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  6. Small Business

    What Does Short Run Mean?

    Short run is the concept that for a business, at least one factor of production is fixed while others are variable.
  7. Investing

    What's a Break-Even Analysis?

    Most businesses have fixed costs such as rent and salaries, as well as costs for raw materials. Break-even analysis shows how many sales it takes to pay off the costs of doing business, and “break ...
  8. Investing

    Fixed Income Trader: Job Description & Average Salary

    Learn about the skill requirements and average salary of a fixed income trader, along with the necessary licenses and daily activities.
  9. Investing

    Operating Leverage Captures Relationships

    Find out how fixed and variable costs interact to shed new light on old companies.
  10. Investing

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
RELATED FAQS
  1. How are semi-variable costs similar to fixed costs?

    Learn what fixed costs are, what semi-variable costs are, why semi-variable costs are similar to fixed costs, and how semi-variable ... Read Answer >>
  2. What are the variables in variable costs?

    Learn about variable costs. Explore how and why these costs may fluctuate, as well as ways in which they may differ from ... Read Answer >>
  3. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  4. Is it better for a company to have fixed or variable costs?

    Understand the difference between a fixed cost and a variable cost, and learn how a company benefits from having more fixed ... Read Answer >>
  5. What is the difference between fixed cost and total fixed cost?

    Learn what a fixed cost is, what a variable cost is, what total fixed costs are, and the difference between a fixed cost ... Read Answer >>
  6. Do minimum wage laws make labor a fixed or variable cost?

    Find out why labor is a classified as a semi-variable cost by the minimum wage laws; labor has elements of both fixed costs ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center