Variable Cost vs Semi Variable Cost

Variable cost and semi variable cost are the part of total cost but there are lots of differences which should know cost accountant for deep cost analysis. Here, we give its list.

Date of Asking Question	2/7/2014 5:54
Name	Deeksha
Country	India
Question Title	Difference
Question Detail	How we can get difference between semi variable cost and variable cost
Category	Cost Accounting
Solution Category	Accounting Solutions

Solution : 

Following are the main differences between variable cost and semi variable cost.

1. Definition 

Variable Cost : In cost accounting, variable cost are those cost which change due to change in the production or sales or any other activities. 

Semi Variable Cost : If any cost have both fixed cost and variable cost features, then it will be semi variable cost. 

2.  Examples

Variable Cost : Expenses of raw material, Electricity expenses, labor cost on production, commission on sale.

Semi Variable Cost : 

a) We can give the example of electricity cost. Up to some limit, we have to pay the bill whether we consume electricity or not after some limit, cost will be on the basis of unit consumed. 

b) We can also give the example of salesman's earning. Salesman gets a fixed salary. He also gets commission on sales. 

c) We can also give the example of dish tv connection. You have to pay monthly fixed charges but if you see extra movie which is not in your monthly plan, you have to pay per extra movie. 

3. Segregation

Variable Cost : We can not segregate the variable cost into semi-variable and fixed cost.

Semi-variable Cost : We can easily segregate the semi variable cost into variable cost and fixed cost. 

4. Importance

Variable Cost : If any company see, it will increase the total sale. company can change any fixed cost as variable cost. For example, many private electricity are using per unit cost instead per month fixed cost of electricity. Customers will happy with this project and only pays when they use electricity. It will be useful when electricity company face the competition from solar electricity companies.

Semi Variable Cost : To consider semi-variable cost is helpful for better profitability planning. If any company thinks, only fixed cost is decreasing its profitability, it will convert fixed cost model to customer into semi-variable cost model.