Fixed, Variable and Semi-variable Costs (ICSE Class 10 Commercial Studies)
Updated 17 October 2026 · Fact-checked
Costs are classified by behaviour. A fixed cost (factory rent) stays the same in total as output changes, so its cost per unit falls as output rises. A variable cost (raw material) changes in total in direct proportion to output, so its cost per unit stays constant. A semi-variable cost (an electricity bill with a fixed charge plus a charge per unit) has a fixed part and a variable part.
Notice where each line starts: fixed stays flat, variable begins at zero, and semi-variable begins at a fixed amount, then rises.
Illustration drawn for QuestionBuddy.
Understand Fixed, Variable and Semi-variable Costs
1. Why classify costs by behaviour?
A manager must know what happens to total cost when output rises or falls. Costs do not all react in the same way, so the syllabus groups them by behaviour into fixed, variable and semi-variable costs. (The other grouping, direct and indirect, is by nature and is a separate topic.)
2. Fixed cost
A cost whose total does not change when output changes, within a given capacity and period. It must be paid even if nothing is produced.
- Total fixed cost: constant.
- Fixed cost per unit: falls as output rises (the same amount is shared by more units) and rises as output falls.
- Examples: rent of the factory, salary of permanent managers, insurance premium, property tax, interest on a loan, licence fee.
- Fixed only within a range: if output grows beyond the capacity of the building and a second one is rented, fixed cost steps up to a new level.
3. Variable cost
A cost whose total changes in direct proportion to output. If output doubles, the total doubles; at zero output it is zero.
- Total variable cost: rises and falls with output.
- Variable cost per unit: constant.
- Examples: raw material consumed, wages paid per piece, packing material, sales commission per unit sold, power used by the production machines.
- Do not confuse it with a price that changes from day to day. Vegetable prices fluctuate but are not a variable cost in this sense; it is the cost that varies with the volume of output.
4. Semi-variable (mixed) cost
Part of the cost is fixed and part varies with output. A minimum amount is payable even at zero activity.
- Total semi-variable cost = fixed part + (rate per unit x units used).
- Examples: electricity bill (connection charge plus charge per unit), telephone bill (line rental plus call charges), a salesperson paid a fixed salary plus commission, repairs and maintenance of machines.
- For decisions it is usually split into its fixed and variable parts and each part is treated accordingly.
5. Behaviour at a glance
| Item | Fixed | Variable | Semi-variable |
|---|---|---|---|
| Total cost as output rises | Same | Rises in proportion | Rises, but not in proportion |
| Cost per unit as output rises | Falls | Same | Falls (the fixed part is spread) |
| Cost at zero output | Still payable | Nil | Only the fixed part |
| Example | Rent | Raw material | Electricity bill |
6. Total cost
Total cost = total fixed cost + total variable cost (semi-variable items are split between the two). Cost per unit = total cost / number of units.
7. Presenting the answer
For "meaning and one example" give a one-line definition and a sure example. For a distinction, compare on the same bases (behaviour of total, behaviour per unit, cost at zero output, examples).
Fixed, Variable and Semi-variable Costs: key facts
- Total cost
- Total cost = Fixed cost + Variable cost | Cost per unit = Total cost / Units
- Semi-variable costs are split into fixed and variable parts first.
- Variable cost
- Total variable cost = Rate per unit x Units | Rate per unit is constant
- Rises in proportion to output.
- Fixed cost per unit
- Total fixed cost / Units produced | Falls as units rise
- Same total, more units.
- Semi-variable cost
- Fixed part + (Rate per unit x Units used) | Only the fixed part at zero use
- For bills with a fixed charge.
How to answer Fixed, Variable and Semi-variable Costs questions
Expect classification with a reason, a short definition with an example, a small calculation of total and per-unit cost, and a distinction.
- 1Ask: does the total change when output changes? No: fixed. Yes, in proportion: variable. Partly: semi-variable.
- 2In a calculation, separate the fixed cost from the variable cost first, then compute total cost, then divide by units.
- 3For per-unit figures divide only after finding the total at that output; never carry a per-unit fixed cost from another output level.
- 4Give a reason with every classification (one clause is enough).
Fixed, Variable and Semi-variable Costs in real life
The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.
Fixed cost per unit
Suppose a small factory pays ₹90,000 as monthly rent and permanent staff salary whether it makes 3,000 or 5,000 chairs.
How does the fixed cost per chair change if output goes from 3,000 to 5,000 chairs?
Try it first, then show the solutionSolution
- At 3,000 chairs: 90,000 / 3,000 = ₹30 per chair.
- At 5,000 chairs: 90,000 / 5,000 = ₹18 per chair.
Answer: It falls from ₹30 to ₹18 per chair, though the total stays ₹90,000.
Memory hook: Same bill, more units to share it.
Semi-variable cost
Imagine a shop whose mobile plan costs a fixed ₹600 a month plus ₹2 for every extra minute beyond the plan, and in a quiet month no extra minutes are used.
Is the bill fixed, variable or semi-variable? What is it in a quiet month?
Try it first, then show the solutionSolution
- There is a fixed part (₹600) and a part that depends on use.
- With no extra minutes, only the fixed part is payable.
Answer: Semi-variable; ₹600 in a quiet month.
Memory hook: A floor you always pay, plus a usage top-up.
Tricks to remember Fixed, Variable and Semi-variable Costs
Short memory aids. Say each one aloud once, then use it on a question the same day.
Per unit flip
Fixed per unit moves, variable per unit stays: "Fixed total stays, variable unit stays".
Use it when: The most common trap.
Zero output test
At zero output ask what is still payable: all of fixed, none of variable, only the fixed part of semi-variable.
Use it when: Classification.
Fixed, Variable and Semi-variable Costs: solved examples
Ordered from board level to HOTS. Try each one before you open the solution.
Example 1: Per-unit behaviour · 1 mark · MCQBoard level
As output increases, which of the following remains constant per unit?
(a) fixed cost
(b) variable cost
(c) semi-variable cost
(d) total cost
Try it first, then show the solutionSolution
- Variable cost changes in direct proportion to output, so the amount per unit is constant.
- Fixed cost per unit falls as output rises.
Answer: (b)
Example 2: Define with example · 2 marks · Very short answerBoard level
What is meant by semi-variable cost? Give one example.
Try it first, then show the solutionSolution
- A cost that has a fixed part and a variable part: a minimum is payable even at zero activity and the rest rises with use.
- Example: an electricity bill with a fixed connection charge plus a charge per unit consumed.
Answer: Semi-variable cost has both a fixed element and a variable element; for example, an electricity bill.
Example 3: Total and per-unit cost · 4 marks · Short answerHarder board level
Suppose a workshop has fixed costs of ₹90,000 a month and variable cost of ₹45 per unit. Calculate the total cost and the cost per unit when it makes (a) 3,000 units and (b) 5,000 units. Why does cost per unit fall?
Try it first, then show the solutionSolution
- (a) Variable cost = 3,000 x 45 = ₹1,35,000. Total = 90,000 + 1,35,000 = ₹2,25,000. Per unit = 2,25,000 / 3,000 = ₹75.
- (b) Variable cost = 5,000 x 45 = ₹2,25,000. Total = 90,000 + 2,25,000 = ₹3,15,000. Per unit = 3,15,000 / 5,000 = ₹63.
- Check: fixed cost per unit is ₹30 and ₹18; adding ₹45 gives 75 and 63.
- Reason: the fixed cost is shared among more units while the variable cost per unit is unchanged.
Answer: (a) Total ₹2,25,000, ₹75 per unit; (b) total ₹3,15,000, ₹63 per unit.
Example 4: Electricity bill · 4 marks · Short answerHarder board level
Suppose a unit is charged a fixed ₹1,500 plus ₹7 for each unit of electricity used. Find the bill for 600 units. If the bill for another month is ₹7,100, find the units used and state the fixed and variable parts.
Try it first, then show the solutionSolution
- Bill for 600 units = 1,500 + (600 x 7) = 1,500 + 4,200 = ₹5,700.
- For ₹7,100: variable part = 7,100 - 1,500 = ₹5,600; units = 5,600 / 7 = 800.
- Check: 1,500 + 800 x 7 = 1,500 + 5,600 = 7,100.
- Fixed part ₹1,500; variable part ₹5,600; the bill is semi-variable.
Answer: ₹5,700 for 600 units; 800 units, with ₹1,500 fixed and ₹5,600 variable.
Example 5: Capacity and fixed cost · 8 marks · Long answerHOTS / competency
Suppose a printing press pays a monthly rent of ₹25,000 and a permanent operator ₹15,000, and spends ₹4 per page on paper and ink. Its present capacity is 15,000 pages a month. (a) Find the total and per-page cost at 10,000 pages. (b) At 20,000 pages a second machine must be hired for ₹10,000 a month; find the total and per-page cost. (c) What does this show about fixed costs?
Try it first, then show the solutionSolution
- Fixed cost = 25,000 + 15,000 = ₹40,000.
- (a) Variable = 10,000 x 4 = 40,000. Total = 80,000. Per page = 80,000 / 10,000 = ₹8.
- (b) Fixed becomes 40,000 + 10,000 = 50,000. Variable = 20,000 x 4 = 80,000. Total = 1,30,000. Per page = 1,30,000 / 20,000 = ₹6.50.
- Without the second machine the cost would have been 40,000 + 80,000 = 1,20,000, so the extra machine adds ₹10,000.
- (c) Fixed costs are fixed only within a capacity range; beyond it they step up to a new level. Even so the cost per page fell from ₹8 to ₹6.50 because the larger output shares the fixed cost.
Answer: (a) ₹80,000, ₹8 per page; (b) ₹1,30,000, ₹6.50 per page; (c) fixed costs are fixed only within capacity.
Where students lose marks in Fixed, Variable and Semi-variable Costs
The slips examiners see most often, and what to write instead.
Mistake: Saying variable cost per unit changes with output
Students mix up the total and the per-unit figure.
Wrong working
Variable cost per unit rises when output rises.
Right working
Total variable cost rises in proportion to output; the variable cost per unit is constant.
Do this: Always say "total" or "per unit".
Usually costs: 1-2 marks.
Mistake: Treating a bill with a fixed charge as fully variable
The fixed charge is ignored.
Wrong working
Electricity bill: variable cost.
Right working
Electricity bill: semi-variable, with a fixed connection charge and a charge per unit.
Do this: Look for a part that is payable at zero use.
Usually costs: 1 mark.
Mistake: Using the wrong example
Examples are the easiest marks to lose.
Wrong working
Fixed cost: raw material.
Right working
Fixed cost: factory rent or permanent manager's salary.
Do this: Learn two sure examples for each class.
Usually costs: 1 mark.
Mistake: Dividing the old fixed cost per unit
A per-unit fixed figure from one output is reused at another.
Wrong working
Output rises, so cost per unit = 30 + 45 = 75 at 5,000 units.
Right working
Fixed cost per unit at 5,000 units = 90,000 / 5,000 = 18, so cost per unit = 18 + 45 = 63.
Do this: Recompute from the total.
Usually costs: 2 marks.
Exam tips
- In a distinction, write both sides on each basis in a full sentence.
- Always give an example after a definition; a definition without an example often earns half the marks.
- When classifying a given item, give a one-clause reason; the item alone may not score.
- In sums, show fixed cost, variable cost, total and per unit in separate lines, with ₹and units.
Practice questions on Fixed, Variable and Semi-variable Costs
Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.
Q1 · 1 mark · Very short answerBoard level
Why does fixed cost per unit fall when output increases?
Hint
Same total, more units.
Answer
The total fixed cost does not change with output, so it is divided among a larger number of units, and each unit bears a smaller share.
Q2 · 4 marks · Short answerHarder board level
Suppose a firm has fixed costs of ₹60,000 and a variable cost of ₹25 per unit. At what level of output will the total cost per unit be ₹35?
Hint
Fixed cost per unit must be the difference.
Answer
Cost per unit = fixed cost per unit + variable cost per unit. So 35 = fixed cost per unit + 25, giving fixed cost per unit = ₹10. Output = 60,000 / 10 = 6,000 units. Check: variable cost = 6,000 x 25 = 1,50,000; total = 2,10,000; per unit = 2,10,000 / 6,000 = ₹35.
Q3 · 4 marks · Short answerHarder board level
Suppose a school bus company has these items: the driver's monthly salary, diesel used per kilometre, the annual insurance premium, and a maintenance contract of a fixed fee plus charges for parts used. Classify each as fixed, variable or semi-variable, giving a reason.
Hint
Test each against zero kilometres run.
Answer
Driver's salary: fixed, paid whatever the kilometres. Diesel: variable, rises in proportion to kilometres. Insurance premium: fixed, the same for the year. Maintenance contract: semi-variable, a fixed fee plus a part that depends on parts used.
Q4 · 4 marks · Short answerHarder board level
Suppose a firm with total fixed costs of ₹20,000 and a variable cost of ₹15 per unit raises output from 1,000 to 2,000 units. State what happens to (i) total fixed cost, (ii) fixed cost per unit, (iii) total variable cost and (iv) variable cost per unit, with figures.
Hint
Compute each at both outputs.
Answer
(i) Total fixed cost stays ₹20,000. (ii) Fixed cost per unit falls from 20,000 / 1,000 = ₹20 to 20,000 / 2,000 = ₹10. (iii) Total variable cost doubles from 1,000 x 15 = ₹15,000 to 2,000 x 15 = ₹30,000. (iv) Variable cost per unit stays ₹15.
Q5 · 4 marks · Short answerHOTS / competency
Suppose a manager argues, "Our rent is a variable cost because the landlord increases it every year." Evaluate the statement and explain with one example of a genuine variable cost.
Hint
Within a period, does the rent change with output?
Answer
The statement is wrong. A cost is variable only if its total changes with the volume of output. Rent is revised by the landlord for reasons unconnected with output and is the same whether the firm makes few or many units in a given period, so it is fixed. A genuine variable cost is raw material, which rises in proportion to the units made.
Test your recall
Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.
1.Does the fixed cost on each unit rise or fall as more units are made?Show answer
It falls, because the same total is shared by more units.
2.What is constant for a variable cost?Show answer
The cost per unit.
3.Name one semi-variable cost.Show answer
An electricity bill or a telephone bill.
4.What is the variable cost at zero output?Show answer
Nil.
5.Give the formula for total cost.Show answer
Total cost = Fixed cost + Variable cost.
Fixed, Variable and Semi-variable Costs: frequently asked questions
Is depreciation a fixed cost?
Depreciation charged on the straight-line basis is the same every year, so it is treated as a fixed cost.
Is a worker's wage always variable?
No. Wages paid per piece produced are variable, but the monthly salary of permanent staff is fixed.
Why are semi-variable costs split?
So that the fixed part and the variable part can be treated correctly in cost sums and decisions.