Semi-variable costs go up when sales and production increase and fall when sales and production volumes decline, but they don’t go up and down by the same percentage. In fact, they generally move up at a lower rate as results increase and drop at a lower rate as results decrease because the fixed portion of semi-variable costs always stays the same.
Electricity is a good example of a semi-variable cost. The base rate for service may be constant, but as production grows, power consumption and the company’s electricity bills go up. In other words, there is both a fixed and variable aspect to semi-variable costs.
Usually, semi-variable costs appear together with fixed costs on a company’s income statement as indirect costs because they do not contribute directly to the production of a specific product or service.
It is important for business owners to understand the dynamics of these costs so they can manage them to their advantage.
More about semi-variable costs
The income statement below shows how semi-variable costs appear on a manufacturing company's income statement and how they factor into the earnings before interest and taxes (EBIT).