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Cost and Management Accounting


Cost & Management Accounting (MGT-402)
VU
Further division of cost behavior
1. Step fixed cost
2. Semi variable cost
Step fixed cost
A step fixed cost is the cost which is constant for a specific range of activity and rises to a new
constant level once the range exceeds. The range over which the fixed cost remains constant is
known as the relevant range.
For example; the depreciation of a machine may be fixed if production remains below 100 number
of units per month, but if the production exceeds 100 number of units, a second machine may
now be required, and the cost of depreciation would go up a step. Other examples include:
a. Rent of workshop (in case of increase in the production one needs to rent one
more workshop)
b. Salary of supervisor (increase in output will be supervised by increased number of
supervisors)
Graph of Step fixed Cost
Rs.
Cost
4000
3000
2000
1000
nits
100
200
300
Volume of output
Volume of output
This graph shows a stepwise increase in the total cost. Relevant range in this graph is of 100
numbers of units.
Semi Variable Cost
It is also known as mixed cost. It is the cost which is part fixed and par variable. It is in fact the
mixture of both behaviors.
Examples include: Utility bills – there is a fixed line rent plus charges for units consumed.
Salesman’s salary – there is a fixed monthly salary plus commission per units sold.
The graph of semi variable cost is as follow:
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