Costs, Semifixed versus Semivariable

Semifixed Costs

Semifixed costs are also called stepped, stepped-fixed, step-variable, step-fixed, or step-function costs. This type of cost remains a constant within a particular range of activity and sharply changes after exceeding the threshold of this range, and then again remains constant during another range of activity. In other words, semifixed costs could be viewed as a combination of multiple fixed costs in which each has a much narrower relevant range. If semifixed costs are plotted against levels of activity, the pattern of semifixed costs looks like steps. Figure 1 illustrates a semifixed cost that increases with increased level of activity. The activity range may be different within each step, and the overall change varies with increased level of activity.

Figure 1 An example of semifixed costs

An example of semifixed costs is the total staff cost for pharmacists. Suppose a pharmacist can handle a maximum of 50 prescriptions per day. Accordingly, a pharmacy needs 10 pharmacists to deal with 451 to 500 prescriptions or 11 pharmacists for 501 to 550 prescriptions. Similar examples include medical or nursing staff costs, administration costs, information technology costs, and equipment maintenance costs.

Semivariable Costs

Semivariable costs are sometimes called mixed costs. This type of cost contains a portion of fixed costs, and the remaining portion varies with an increased level of activity. Semivariable costs can be further classified as linear or nonlinear semi-variable costs, and the classification of patterns depends on the relation of the variable portion to the change of activity. Typical figures of semivariable cost patterns are shown in Figure 2. Note that the total cost line does not pass through the origin because there is a fixed cost component.

An example of linear semivariable costs is laboratory costs. For a diagnosis test, the device cost and the annual maintenance cost are fixed, and the total cost of test strips varies with an increased number of tests. A utility cost may be an example of a nonlinear semivariable cost. A basic monthly fee is charged regardless of the amount of the utility used, and an additional charge increases with increased use of the utility; however, the rates may vary with an increased amount of use. Other examples of semivariable costs include car rental (fixed vehicle rental fee plus variable costs for fuel and mileage) and facility costs (fixed [Page 238]rental or maintenance costs plus various total utility costs in general).

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