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Electricity charges for a workshop consist of a flat monthly meter rent plus a usage charge that rises with units consumed. A cost with both a fixed and an output-varying element like this is classified as:
AA semi-variable cost
BA purely fixed cost
CA purely variable cost
DA stair-step cost
Answer & Solution
Correct answer: A. A semi-variable cost
1. Semi-variable costs are neither perfectly variable nor absolutely fixed with respect to output.
2. The electricity bill has a fixed meter rent plus a usage-based charge, mixing both elements.
3. This blend of a fixed and a variable component is the defining feature of a semi-variable cost.
4. A purely fixed (B) or purely variable (C) cost has only one element; a stair-step cost (D) stays flat then jumps in steps, which is not described here. Hence semi-variable.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.4_
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