Which term describes costs that have both fixed and variable components, such as power?

Which term describes costs that have both fixed and variable components, such as power?

• A. Semi-variable costs
• B. Variable costs
• C. Fixed costs
• D. Total costs

Answer: (A)

Semi-variable costs are costs that contain both a fixed portion and a variable portion. This means you pay a baseline amount even if activity is zero, plus additional costs that rise as usage or output increases. Power bills are a classic example: there’s a fixed monthly charge plus charges for electricity consumed. As consumption goes up, total power cost increases, but not from zero because the fixed part remains. This differs from purely variable costs, which move in direct proportion to activity and have no fixed base, and from fixed costs, which stay constant regardless of activity. Total costs simply refer to the overall expense at a given level of activity and don’t specify the mix of fixed and variable components.

Semi-variable costs are costs that contain both a fixed portion and a variable portion. This means you pay a baseline amount even if activity is zero, plus additional costs that rise as usage or output increases. Power bills are a classic example: there’s a fixed monthly charge plus charges for electricity consumed. As consumption goes up, total power cost increases, but not from zero because the fixed part remains.

This differs from purely variable costs, which move in direct proportion to activity and have no fixed base, and from fixed costs, which stay constant regardless of activity. Total costs simply refer to the overall expense at a given level of activity and don’t specify the mix of fixed and variable components.