Question
Distinguish between variable cost and semi-variable cost.
| S.No | Basis | Variable Cost | Semi-Variable Cost |
| 1. | Definition | Costs that vary in direct proportion to changes in production or activity levels. | Costs that have both variable and fixed components, with a portion changing with activity levels and another portion remaining constant. |
| 2. | Behavior | Changes in direct proportion to activity levels. | Increases with activity levels but has a fixed elements that remains constant regardles of activity. |
| 3. | Cost Formula | Variable cost per unit x Number of units produced or sold. | Fixed cost + (variable cost per unit+ number of units produced or sold |
| 4. | Cost Analysis | Typically easier to analyse and predict. | Requires more complex analysis due to the mixed nature of the cost. |
| 5. | Examples | Direct materials, variable labour costs, etc. | Utilities costs (electricity cost, water) that have both a fixed components (eg. basic connection fees) and a variable component (usage-based charges). |
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