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Unformatted text preview: increase in some constant proportion. The result is a straight
line, whose slope (vertical rise per horizontal unit) is determined by the amount of variable costs associated with
each unit of output, as shown in Quadrant C.
An example of variable costs in many manufacturing organizations is raw materials, which will increase in almost direct proportion to increases in the number of units of product manufactured. Some organizations will have
relatively high variable costs per unit, resulting in a line that slopes upward quite steeply; other organizations will
have variable costs that are relatively low for each unit of output, so the variable-cost line has a more gradual slope.
Semi-variable costs (sometimes called mixed or semi-fixed costs) share features of both fixed and variable
costs. There is a minimum level of costs that is fixed, but the cost line then increases with increases in volume. The
result is a line that begins at some level above zero, and then slopes upward in a linear fashion, as shown in Quadrant D.
A good example of a semi-variable cost is electricity. Typically, there is some base cost each month...
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This document was uploaded on 03/30/2014.
- Spring '14