Question

What is the meaning of step-variable cost, step-fixed cost, semi-variable (or mixed) cost, and curvilinear cost? Can you explain with one example?

Answer 1

Step Variable cost

A step variable cost is a cost that generally varies with the level of activity, but which tends to be incurred at certain discrete points and to involve large changes in amounts when such a point is reached.

Example: The cost of starting up a new production shift, which includes utilities and the salaries of shift supervisors

Step Fixed cost

A step fixed cost is a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached

Example: The cost of a new production facility, which includes depreciation on the equipment and the salaries of the production line supervisors.

Semi-variable or mixed costs

A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a cost composed of a mixture of both fixed and variable components. Costs are fixed for a set level of production or consumption, and become variable after this production level is exceeded

Example: commission payments and overage charges

Curvilinear cost

Curvilinear cost, also called a nonlinear cost, is an expense that increases at an inconsistent rate as production volume increases. In other words, this is an irregular cost that increases at different rates as total output increases.

Example: few hourly workers are needed, so the costs are low. When production levels get into the mid-level, more workers are needed. The costs increase, but more efficiencies are also added which allows the same number of workers to increase output. Once the production reaches the highest levels of output, more workers are needed increasing the total labor costs.