Semi-Variable Cost
A cost that has both a fixed base component and a variable component that increases with production or activity levels.
What is Semi-Variable Cost?
A semi-variable cost (also called a mixed cost) consists of two elements: a fixed portion that is incurred regardless of activity level, and a variable portion that increases proportionally with output or usage. Common examples include utility bills (a fixed monthly service charge plus a per-unit consumption charge), a salesperson's compensation (base salary plus commission), and equipment maintenance contracts (a flat retainer plus a per-repair fee). Understanding semi-variable costs is critical for break-even analysis and budgeting because they don't fit neatly into either the fixed or variable cost categories. The high-low method and regression analysis are commonly used to separate the fixed and variable components of a semi-variable cost by comparing total costs at different activity levels.
Example
A factory's monthly electricity bill is $2,000 (fixed service charge) plus $0.08 per kilowatt-hour consumed. At 50,000 kWh usage, the total bill is $6,000; at 80,000 kWh, it's $8,400. The fixed component stays at $2,000 while the variable component scales with consumption—making electricity a semi-variable cost.