The correct answer is E. Semi-variable costs are partly fixed and partly variable in relation to output.
- Fixed costs are costs that do not change with the level of output. Examples of fixed costs include rent, insurance, and depreciation.
- Variable costs are costs that change in direct proportion to the level of output. Examples of variable costs include direct labor, direct materials, and utilities.
- Semi-variable costs are costs that have both fixed and variable components. Examples of semi-variable costs include sales commissions, maintenance, and advertising.
Sales commissions are a good example of a semi-variable cost. A salesperson may be paid a base salary plus a commission on sales. The base salary is a fixed cost, while the commission is a variable cost. The total cost of sales commissions will increase as sales increase, but the base salary will remain the same.
Maintenance is another example of a semi-variable cost. The cost of maintenance will vary depending on the level of usage of equipment. However, there will always be some minimum level of maintenance costs, even if the equipment is not being used.
Advertising is a third example of a semi-variable cost. The cost of advertising will vary depending on the level of advertising activity. However, there will always be some minimum level of advertising costs, even if the company is not running any advertising campaigns.
Semi-variable costs can be difficult to manage because they have both fixed and variable components. Managers need to carefully track semi-variable costs to ensure that they are not overspending.