Essay: Semi Variable Costs

Essay: Semi Variable Costs
June 8, 2011 Comments Off on Essay: Semi Variable Costs Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

There are various examples of semi variable costs which include a fixed portion and a variable portion. These examples include electricity expenses, telephone expenses, basic wage plus commission based salaries and labour costs where overtime is paid on an hourly basis. The cost of electricity is a semi variable expense as some portion of the total electricity bill charged is at a flat rate whereas the consumption expense is based on the number of units consumed in a particular month.

The cost components of telephone expenses are similar to those of electricity expenses as the line rent portion of the bill is fixed whereas any additional units consumed over the limit will be charged according to a per minute rate. The sales personnel in a company are usually paid a certain amount of fixed salaries and are offered a commission on number of units sold. The labour costs in companies where workers are offered a basic wage plus overtime plan, the labour costs are also variable as total wages are fixed whereas the additional hours worked will be charged according to a per hour rate which is variable (Hilton, Ramesh and Jayadev 2008). The common factor in all these costs or expenses is the recognition of semi variable costs rather than classification of fixed elements and variable elements separately. The main reason for recognising costs as semi variable costs or mixed costs is the inclusion of both fixed and variable elements in the total expenses incurred. If only the fixed cost of the electricity expense is recognised without properly applying the per unit rate of electricity the total electricity expense cannot be calculated.

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