Calculate fixed, variable, semi-variable and stepped costs
Model how total cost changes with activity within a stated relevant range, and separate the total-cost pattern from direct or indirect classification.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons cover Topic 2.1.1: materials and labour costs, fixed, variable, semi-variable and stepped costs, direct and indirect cost elements, FIFO and AVCO under periodic and perpetual inventory systems, and just-in-time principles. Practice is self-checked, not an official Cambridge grade; full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use arithmetic with units and distinguish a material purchase, material issued to production, labour cost and inventory balance before classifying a production cost.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A cost is $5,000 in total at both 500 and 800 units within the same capacity range. What pattern best fits?
What you will learn
- Identify the behaviour of fixed, variable, semi-variable and stepped costs
- Calculate costs at different activity levels from supplied data
- Use a relevant range and avoid treating observed patterns as universal
Describe cost behaviour in a relevant range
A fixed cost stays constant in total over a stated activity range and time period; fixed cost per unit falls as output rises within that range. A variable cost changes in total with output, often at a constant rate per unit in a simplified model; variable cost per unit then stays constant.
A semi-variable cost contains a fixed element plus an activity-related element. If the data support a straight-line model, total semi-variable cost = fixed element + variable rate × activity. A stepped cost stays fixed within an activity band then jumps when another resource is needed, such as an extra supervisor or machine.
Keep behaviour separate from traceability
Direct versus indirect asks whether a cost can be traced to a cost unit. Fixed versus variable asks how total cost behaves when activity changes. A cost can be direct and variable, indirect and fixed, or another combination depending on the setting.
State the relevant range: rent may be fixed for current capacity but rise when a second factory is leased. A simplified variable-cost rate may change because of discounts or efficiency. Use the pattern supported by the question, and do not assume a short observation proves a permanent relationship.
Pause and explain
A machine lease costs $1,800 for each 400-unit capacity band or part of one. What is the lease cost at 850 units?
Worked example
Within a month, a factory has fixed costs of $6,000 and a variable cost of $4 per unit. A delivery contract costs $500 plus $1.50 per unit. One supervisor costs $2,400 for each 500 units of capacity or part of that band. Calculate each cost at 800 and 1,100 units.
Show the worked solution
- At 800 units, fixed plus variable cost = 6,000 + (4 × 800) = $9,200; at 1,100 it is 6,000 + 4,400 = $10,400. (The example cost at 1,100 is $10,400.)
- Delivery cost is semi-variable: 500 + (1.50 × 800) = $1,700, then 500 + (1.50 × 1,100) = $2,150.
- Supervisor cost uses two bands at 800 units and three at 1,100: $4,800 then $7,200. The step occurs when capacity crosses 1,000 units.
Answer At 800 units: fixed-plus-variable production cost $9,200; delivery $1,700; supervisor cost $4,800. At 1,100 units: $10,400; $2,150; and $7,200 respectively.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A service has fixed cost $2,500 and variable cost $3 per job. It also pays $200 plus $0.50 per job for a dispatch service. Calculate both totals for 600 jobs.
Give me a hint
Use fixed + rate × activity for each line, with a zero activity part for fixed cost.
Compare my reasoning
- Service cost = 2,500 + (3 × 600) = $4,300.
- Dispatch cost = 200 + (0.50 × 600) = $500.
- The dispatch bill is semi-variable; the service cost has a fixed and a variable component in the supplied model.
Service cost $4,300; dispatch $500.
Look for these in your work
- Activity multiplied by each rate
- Fixed amount included once
- Behaviours distinguished
A packaging team pays $900 per shift. Each packer can handle 300 orders per shift and costs $150 per shift. How much labour cost is needed for 620 orders if each order needs one packer-capacity unit?
Give me a hint
Find how many whole capacity bands are needed, then multiply by the per-person cost.
Compare my reasoning
- Two packers cover 600 orders, so 620 orders need a third capacity band.
- Total packer cost = 3 × $150 = $450 per shift.
- The packer cost is stepped with capacity; the $900 shift payment is fixed over the stated capacity and time.
Packer labour cost is $450 for the shift; total with the $900 fixed shift cost is $1,350, if the question asks for both.
Look for these in your work
- Capacity bands rounded up
- Stepped labour total correct
- Separate fixed shift cost
A manager says a factory's electricity is variable because the bill rose when production rose. Give two checks before classifying the whole bill and explain one limitation of using only two months of data.
Give me a hint
Consider a standing charge, activity units, tariffs and other changes between months.
Compare my reasoning
- Separate any fixed standing charge from the usage charge.
- Check meter readings, production mix, operating hours, tariff changes and weather where relevant.
- Two observations can coincide with price or capacity changes, so they do not establish a stable cost rate or cause.
Do not classify the whole electricity bill from two totals alone. Separate fixed and usage charges, compare consumption and tariff data, and check other operating changes; a small sample may not show a reliable long-run relationship.
Look for these in your work
- Fixed element checked
- Activity-related units checked
- Evidence limitation stated
Common mistakes
- Saying fixed cost per unit stays fixed as output changes
- Treating every cost that rises over time as variable with output
- Ignoring the capacity band that triggers a stepped cost
What can you explain now?
A monthly bill is $300 plus $2 for each unit delivered. What is its cost behaviour?
Compare with the explanation
Semi-variable
It contains a fixed base and a variable amount that depends on units delivered.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
How does a semi-variable cost differ from a stepped cost when activity rises?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.