What is a Semi-Variable Cost?
A semi-variable cost has characteristics of both fixed costs and variable costs once a specific level of output is surpassed.
How Does a Semi-Variable Cost Work?
Semi-variable costs remain fixed up to a particular production volume. Beyond this volume, semi-variable costs increase in direct proportion to output. Wages, for instance, are semi-variable costs which multiply by 1.5 beyond 40 hours worked in a given week (also called time-and-a-half).
Why Does a Semi-Variable Cost Matter?
Semi-variable costs are an important consideration for companies when planning output levels, because semi-variable costs may limit profitability at higher production levels and erode a company's bottom line.