Costs are classified into three categories based on level of activity which are fixed costs, variable costs and semi variable costs. Fixed costs remain constant irrelevant of the activity level in an organisation. Variable costs are directly proportional to the level of activity in an organisation and change positively or negatively with an increase or decrease in the level of activity. Costs are classified as fixed or variable based on the behaviour patterns of specific costs. Total fixed costs remain constant with changes in level of activity whereas per unit fixed cost changes with changes in activity. Alternatively total variable costs increase and decrease with changes in level of activity and unit variable cost remains unchanged with changes in level of activity.
Semi variable costs have the characteristics of both fixed costs and variable costs and include components of both variable and fixed costs. Semi variable costs also change with changes in levels of activity but not in the same proportion as variable costs (Drury 2005). This paper explains the nature of semi variable costs in lieu of a definition of semi variable cost by Pauline Weetman in her book Management Accounting. Weetman states that semi variable costs are partially fixed and partially variable in nature and change with the level of activity in the organisation. This paper answers the second question which focuses on the separation and splitting of all costs including semi variable costs and defines how fixed costs and variable costs can be separated. Semi variable costs are analysed in this paper with the help of an example of cost behaviour in a hospital.
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