Practice Question

Semi-fixed costs: Expenses that consist of both fixed and variable elements.

Semi-fixed costs, also known as semi-variable costs or mixed costs consist of both fixed and variable elements. Managers must understand the nature of such expenses to properly analyze the cost components of an item and price it accordingly.

For example, companies may pay rent (fixed) and utilities (variable) in one bill. Companies use the following formula to analyze semi-fixed costs.

Semi-Fixed Cost =
Fixed Cost +
(Variable Cost Per Unit x Level of Activity

For example, a company must pay licensing fees of $10,000 per year plus $20 per usage of materials. If this company uses the materials 50 times a year, how much is the semi-fixed cost?

$11,000