Which statement describes semivariable costs?

Which statement describes semivariable costs?

• A. Cost that remains constant regardless of sales
• B. Cost that increase and decrease as sales increases and decreases but not in direct proportion (contains both fixed and variable)
• C. Cost that varies with the number of customers
• D. Cost that is entirely fixed over time

Answer: (B)

Semivariable costs are mixed costs that have two parts: a fixed portion that stays the same within the relevant range and a variable portion that changes with activity. Because of the fixed part, total cost does not rise or fall in direct proportion to sales. Instead, as activity increases or decreases, the total cost moves up or down, but the change isn’t a simple one-for-one relationship with sales. This matches a statement describing costs that increase and decrease as sales change, but not in direct proportion, since part of the cost remains constant while another part varies with activity. For example, a fixed monthly charge plus a per-unit cost will grow with more units, but not in direct proportion to sales because of the constant fixed component. By contrast, a cost that stays constant regardless of sales describes a fixed cost, and a cost that varies exactly with the number of customers or units without any fixed portion describes a purely variable cost.

Semivariable costs are mixed costs that have two parts: a fixed portion that stays the same within the relevant range and a variable portion that changes with activity. Because of the fixed part, total cost does not rise or fall in direct proportion to sales. Instead, as activity increases or decreases, the total cost moves up or down, but the change isn’t a simple one-for-one relationship with sales.

This matches a statement describing costs that increase and decrease as sales change, but not in direct proportion, since part of the cost remains constant while another part varies with activity. For example, a fixed monthly charge plus a per-unit cost will grow with more units, but not in direct proportion to sales because of the constant fixed component.

By contrast, a cost that stays constant regardless of sales describes a fixed cost, and a cost that varies exactly with the number of customers or units without any fixed portion describes a purely variable cost.