This cost remains fixed over certain period of time irrespective of units produced. For example rent of building .It’s important to note that fixed cost remains fixed for certain level of activity , after which it increases
Although total cost is fixed for a period but as the number of units increases, the fixed cost per unit decreases.
Fixed cost
100,000
100,000
Number of units produced
100
200
Cost per unit
100,000/100 = 1000
100,000/200 = 500
FIXED COST
Variable Cost
Cost that increases with number of units produced. E,g material cost per unit. Total of variable costs increases per but per unit variable cost remain same
Variable cost
100,000
120,000
Number of units produced
100
200
Cost per unit
100,000/100 = 1000
120,000/200 = 1000
Variable Cost
Semi Variable Cost:
Cost that is partly fixed and partly variable .Such type of costs contain both fixed and variable portions.
Examples
Telephone bill
Electricity bill
Suppose According to electricity bill rules ,gave following rates are applicable:
Fixed cost up to 300 units =$ 3000
Units higher than 300 = 20$ per unit
If company ABC uses 500 units then
For first 300 units = 3000
For next 200 units = 200* 20 = 4000
Total cost = $ 7000
Semi Variable Cost
Stepped Costs:
Cost that is fixed for certain limit, but after that limit it increases. For example fix rent of building is $10,000 with capacity to produce 100,000 units. If production exceeds 100,000 units company have to take some other building on rent, which will increase fixed cost of $10,000. Let’s say other rent of other building taken on rent is again 100,000 with capacity to produce another 10,000 units, so cost will again remain fix till 20,000 units and will step up ,if production increases more than 20,000 units
