Question

A manufacturing company has four (4) types of cost (identified as T1, T2, T3, and T4). The total cost for each type at two (2) direct production levels is:

Cost Type: Total Cost-125 Units: Total Cost-180 units.
($) ($)
T1 £1000 £1250
T2 £1750 £2520
T3 £2475 £2826
T4 £3225 £4644

Which cost types would be classified as being semi-variable?

(a) T1
(b) T2
(c) T3
(c) T4

Answer 1

The cost types T2 and T3 are classified as semi-variable costs.

Step-by-step explanation:

The cost types that would be classified as semi-variable are T2 and T3.

A semi-variable cost, also known as a mixed cost, is a cost that has both fixed and variable components. In this case, T2 and T3 have different costs at each production level, indicating that there is a fixed component that remains constant and a variable component that varies with the level of production.

For example, at 125 units of production, the total cost for T2 is £1750, while at 180 units of production, the total cost increases to £2520. This shows that there is a fixed cost component of £1750 - £1600 = £150, and a variable cost component of £2520 - £1750 = £770. The same logic applies to T3, where there is a fixed cost component of £2475 - £1600 = £875, and a variable cost component of £2826 - £2475 = £351.