WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All In One Bundle
  • Login
Home » Accounting Tutorials » Budgeting Tutorials » Semi Variable Cost

Semi Variable Cost

Semi Variable Cost Definition

Semi-variable cost can be defined as the mixture of the fixed cost as well as the variable cost where the fixed costs are set at certain production level and exceeding fixed cost it becomes variable costs, for example, electricity bill etc. and its behavior depends partially on fixed & variable costs because of which these costs are also known as mixed cost.

In such mixed cost, the fixed part will occur irrespective of the level of the production, even in case of zero production activities, a fixed cost will still incur. However, the variable part of such costs is totally dependent on the level of production work carried by the entity and increases in proportion with the production levels. That means that semi-variable costs can be calculated by adding the fixed costs and the variable costs (based on the level of production).

Formula

Semi Variable Cost = F + VX
Semi Variable Cost

Where:

  • F = fixed cost
  • V = variable cost per unit
  • X = total production in units

Examples of Semi Variable Cost

You can download this Semi Variable Cost Examples Excel Template here – Semi Variable Cost Examples Excel Template

Example #1

The best examples to understand this concept are the expenses related to telephone and electricity:

Telephone Bills: – A firm has a landline telephone connection with a plan to make 100 calls per day. The plan costs $750 per month; however, if the firm makes more calls, than a rate of $0.50 per call will be charged. Calculate the variable, fixed, and semi-variable costs for the firm for 1 month. Assume firm makes additional 40 calls per day.

Solution:

Firm’s Fixed Cost = $ 750 per month

This constant amount incurred by firm irrespective of the number of calls made is the fixed cost

Total Variable Cost = Variable Cost Per Unit * Additional calls per month

  • =0.5 * (40*30)
  • =$ 600 per month

Semi-Variable Cost Formula = Fixed Cost + Total Variable Cost

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course
  • =$ (750 + 600)
  • $ 1350

Create a sensitivity analysis of the cost for the telephone bills of the firm and create a graphical presentation.

semi variable cost example 1.1

Graphical presentation of mixed cost for monthly charges is as follows-

semi variable cost example 1.2

semi variable cost example 1.3

Example #2

The production dept of a company incurs fixed expenses of $1.5 million per month while operating on its minimal capacity. Due to a big urgent order, it has to work for an additional 90 hours in the month. The company provides the data regarding its variable costs that consist of electricity bills, telephone bills, raw material expenses, and salaries to be $12000 per hour. The company wants to calculate its total semi-variable cost.

We have the following data for the calculation of cost-

  • Fixed Cost (F): $1,500,000
  • Variable Cost per hour (V): $12,000
  • Working hours (X): 90

Calculating the total mixed cost:

semi variable cost example 2.2

  • T = F + VX
  • =1,500,000 + (12000 * 90)
  • =1,500,000 + 1,080,000
  • =2,580,000

Example #3

Let’s say, Admiral Sportswear Pvt. Ltd, an international sportswear manufacturing company, located in England. For the upcoming tournament of the ICC cricket world cup, the factory needs to work for some extra hours to fulfill the other requirements. The management is worried about the increment in the costs due to additional production activities.

Consider the following information about the semi-variable cost at different production levels provided by the production department of the company to calculate the variable cost and the fixed cost.

Given:

Quantity Units Semi-Variable Cost
500000 £14,000,000
100000 £5,000,000

Calculating the variable portion (per unit)

#1 – Difference between the units of output and related Cost

semi variable cost example 3.2

#2 – Variable cost per unit

Divide the calculated difference cost by quantity:

Example 3.3

  • = £9,000,000 / £ 400000
  • = £22.50

#3 – Calculating Fixed cost

Example 3.4

  • = £ 50,00,000 – £ 22,50,000
  • = £ 27,50,000

#4 – Rechecking the results: by adding the fixed cost to the total variable costs (at 500000 units). The result should be the total cost as given.

Example 3.5

Example 3.6

Refer above-given excel sheet for detailed calculations.

Conclusion

Semi variable cost has components of both variable and fixed expenses; hence it becomes vital for companies to consider while planning for additional production activities. Ignorance or inefficient management of costs may limit the profitability of the company at higher levels of production.

  • Remember, this cost remains fixed up to a certain level of production but gradually increases upon utilization of higher levels of production capacity of the company.
  • Refer to the graph shown in example 1, where telephone bills remain constant up to a certain limit and with additional usage, the bill amount gradually rises.

Recommended Articles

This has been a guide to Semi Variable Cost Examples and its definition. Here we discuss the formula to calculate semi-variable cost along with examples. You can learn more about accounting from the following articles –

  • Semi-Fixed Cost
  • Per Unit Variable Cost
  • Calculate Total Variable Cost
  • Fixed Cost vs Variable cost
  • Product Cost
6 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

WallStreetMojo

Download Semi Variable Cost Examples Excel Template

New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More