Management Accounting · Cost classification

Fixed, Variable and Semi-Variable Costs Explained

Updated 11 October 2026 · Fact-checked

Cost behaviour describes how a cost changes when activity changes. A variable cost rises in proportion to activity, a fixed cost stays the same within a relevant range, and a semi-variable cost has both parts. To split a semi-variable cost, use the high-low method: variable cost per unit = change in cost ÷ change in activity.

Understand Cost Behaviour: Fixed, Variable and Semi-Variable Costs

Cost behaviour is how total cost reacts when the level of activity changes. Activity might be units produced, machine hours, or miles driven. Management needs this to forecast costs, build budgets and make decisions.

A variable cost changes in total in direct proportion to activity. Cost per unit stays constant. Direct materials are a typical example. If one unit needs $4 of material, 500 units cost $2,000. On a graph, total variable cost is a straight line starting at zero.

A fixed cost stays the same in total whatever the activity level, within a relevant range and a given time period. Rent is an example. Fixed cost per unit falls as activity rises, because the same total is spread over more units. On a graph, total fixed cost is a horizontal line.

A stepped fixed cost is fixed over a range of activity, then jumps to a new level when activity passes a limit. For example, one supervisor may be needed for every 1,000 units. At 1,001 units, you need a second supervisor. The graph looks like a staircase.

A semi-variable cost (also called a mixed cost) has a fixed part and a variable part. A phone bill with a fixed line rental plus a charge per minute is a good example. The graph is a straight line that starts above zero on the vertical axis. ACCA may use either term for this, so read the question carefully.

Key formulas to remember

Total cost (linear): y = a + bx; y = total cost, a = fixed cost, b = variable cost per unit, x = activity level.
Variable cost per unit (high-low): b = (cost at highest activity − cost at lowest activity) ÷ (highest activity − lowest activity); Use the highest and lowest activity levels, not the highest and lowest costs, unless they coincide.
Fixed cost (high-low): a = total cost at either level − (b × activity at that level); Using the high or the low level gives the same answer.
Fixed cost per unit: Total fixed cost ÷ number of units; Falls as activity rises. Total fixed cost does not change in the relevant range.

How to solve Cost Behaviour: Fixed, Variable and Semi-Variable Costs questions

Use this method for any question on cost behaviour, whether it asks you to identify a pattern, sketch a graph or split a mixed cost.

1Read how the cost is described. Look for words such as 'per unit', 'fixed charge', 'each additional' or 'for every'.
2Decide the pattern: variable, fixed, stepped fixed or semi-variable. Ask what happens to the total at zero activity.
3Check the relevant range. Fixed costs only stay fixed within the activity range and time period stated.
4If asked for a graph, match the shape: straight line from the origin for variable, horizontal for fixed, staircase for stepped, straight line from a positive intercept for semi-variable.
5If asked to split a mixed cost, find the highest and lowest activity levels and their costs.
6Calculate b = change in cost ÷ change in activity, then a = cost − (b × activity).
7Check by recalculating total cost at the other activity level. It should match the data.
8Use y = a + bx to predict cost at the required activity, staying inside the range of the data.

Quickest way: Spot the pattern and run the high-low in under a minute

When to use it: Use this for multiple choice and number entry questions where you must identify a pattern or split a cost quickly.

Test the cost at zero activity. Zero total means variable. A positive amount that never changes means fixed. A positive amount that also rises means semi-variable.
If the cost jumps at certain activity points, choose stepped.
For high-low, write the two activity levels and costs on your note pad, then subtract.
Divide the cost difference by the activity difference to get b.
Multiply b by one activity level and subtract from the cost to get a.
Sanity check: a should be positive and b should look reasonable compared with the costs given.

Common mistakes in Cost Behaviour: Fixed, Variable and Semi-Variable Costs

Picking the highest and lowest costs instead of the highest and lowest activity levels in the high-low method.
The words 'high' and 'low' make students look at the cost column first.
Fix: Always scan the activity column. Choose those two rows, then read off their costs.
Saying fixed cost per unit is constant.
Students mix up total fixed cost with fixed cost per unit.
Fix: Remember: total fixed stays constant, per unit falls as output rises. Total variable rises, per unit stays constant.
Drawing a semi-variable cost graph from the origin.
Students copy the variable cost line.
Fix: Start the line on the vertical axis at the fixed element. It then slopes upwards.
Treating a stepped cost as variable because it rises with activity.
Total cost does increase, so it looks variable.
Fix: Check whether the increase is smooth or happens in jumps. Jumps mean stepped fixed.
Forgetting the relevant range when predicting costs.
Students assume the formula y = a + bx works at any activity level.
Fix: Only forecast within the range of the data. Outside it, fixed costs may step up and the line may no longer hold.
Mixing units in the high-low calculation, such as thousands of units with whole-dollar costs.
Data tables are sometimes shown in thousands.
Fix: Write the units next to each figure and keep them consistent in every line of working.

Worked examples

Example 1

A company's maintenance cost is semi-variable. In March, 4,000 machine hours cost $26,000. In April, 7,000 machine hours cost $35,000. These are the lowest and highest activity levels. Estimate the maintenance cost for 5,500 machine hours.

Show the solution

Highest activity is 7,000 hours at $35,000. Lowest is 4,000 hours at $26,000.
Change in cost = 35,000 − 26,000 = $9,000.
Change in activity = 7,000 − 4,000 = 3,000 hours.
Variable cost per hour b = 9,000 ÷ 3,000 = $3.
Fixed cost a = 35,000 − (3 × 7,000) = 35,000 − 21,000 = $14,000.
Check at low level: 14,000 + (3 × 4,000) = 26,000. This matches.
Cost at 5,500 hours = 14,000 + (3 × 5,500) = 14,000 + 16,500 = $30,500.

Answer: $30,500

Example 2

A factory needs one supervisor for every 2,000 units produced or part thereof. Each supervisor costs $18,000 a year. What is the total supervision cost if the factory produces 4,500 units, and what type of cost behaviour is this?

Show the solution

Units per supervisor = 2,000.
4,500 ÷ 2,000 = 2.25, so you need 3 supervisors because part of a block needs a full supervisor.
Total cost = 3 × $18,000 = $54,000.
Cost stays the same within each block of 2,000 units, then jumps by $18,000 at the next block.
This is a stepped fixed cost.

Answer: $54,000; a stepped fixed cost

Exam tips

In multiple choice questions, check the wording for hints such as 'per unit' or 'fixed charge' before reading the options.
For graph questions, check what the axes show. The shape of a cost per unit graph is different from a total cost graph.
For number entry, show your working on the note pad and check the units and the answer format before submitting.
In multiple response questions, pick exactly the number of options stated. Read every option, since similar-looking graphs often differ only in the intercept.
Remember that fixed costs are fixed only within a relevant range and time period. Examiners often test this wording.

Practice questions from Cost classification

Cost Behaviour: Fixed, Variable and Semi-Variable Costs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cost Behaviour: Fixed, Variable and Semi-Variable Costs: frequently asked questions

What is the difference between a fixed cost and a variable cost?

A fixed cost stays the same in total when activity changes, within a relevant range. A variable cost changes in total in direct proportion to activity. Per unit, the reverse is true: fixed cost per unit falls with activity and variable cost per unit stays constant.

What is the difference between a semi-variable cost and a stepped fixed cost?

A semi-variable cost has a fixed element plus a variable element, so it rises smoothly with activity. A stepped fixed cost stays flat over a range and then jumps to a higher level. The graph of the first is a sloping line and the second is a staircase.

How do you split a semi-variable cost using the high-low method?

Take the highest and lowest activity levels with their costs. Divide the difference in cost by the difference in activity to get the variable cost per unit. Then subtract total variable cost from total cost at either level to find the fixed cost.

Is a mixed cost the same as a semi-variable cost?

In ACCA Management Accounting the terms are generally used for a cost with both a fixed and a variable part. Read the question carefully and focus on the description of the cost rather than the label.