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Semi-variable cost

A semi-variable cost contains a fixed component and a variable component within the relevant activity range. A linear model is total cost = fixed amount + variable rate × activity. Separate the components when flexing budgets or forecasting costs, rather than applying one average unit cost to every activity level. Estimates may be obtained from contract terms or analysed cost data and should be checked for changes in rates and capacity.

Worked example

A utility contract charges $500 per month plus $2 per machine hour. At 300 hours, cost is $1,100; at 500 hours it is $1,500.

Common mistake

The average cost per hour is not the variable rate: it includes a share of the fixed component.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027