On the basis of behaviour costs are classified into fixed, variable and semi-variable.
(i) Fixed Cost: Fixed costs mean the costs which do not vary or which remain constant within a given period of time and range of activity inspite of fluctuations in output. Rent of factory building, factory manager's sal-ary, property tax, insurance, interest on loans, etc., are examples of fixed costs. Fixed costs are considered overheads. With increase in output fixed costs per unit of output decline.
(ii) Variable Cost: Variable costs are the costs which vary directly in proportion to changes in the volume of output. Cost of direct material and direct labour, power, etc., are examples of variable costs. When the output is double, variable cost will also be double.
(iii) Semi-variable costs: There are certain costs which do not vary proportionately but do not remain con-stant with changes in the volume of output. Such costs are known as semi-variable costs. For example, in telephone costs, basic rental charge is fixed but call charges are variable.