Question

Let’s say for example, that a certain business X is undertaking a new project:

In year 1 the business is attracting 100 customers

In year 2 110 customers

In year 3 121 customers

In order to proceed with the project. The business would need additional staff salaries. Those would be 10k in year 1, 20k in year 2 and 30k in year 3, in addition of existing annual staff salaries of 15 k. are the additional staff salaries a fixed cost, a variable cost, or a semi-fixed cost? In the last case, how de we calculate it ?

Answer 1

Considering the additional staff salaries:

These are semi fixed costs.

in case of semi fixed cost, total semi fixed cost= Fixed cost+ variable cost

Variable component can be calculated as follows: changes in total cost/ changes in total output

Part1: therefore taking 100 and 110 units:

chnages in total semi variable cost= 20k-10k=10k

changes in output= 110-100=10

therefore variable cost per additional units= 10k/10=1k

hence, for 110 units: variable cost=1k*10=10000, fixed cost= 20000-10000=10000

Part 2: now considering 110 and 121 units: changes in total cost= 10k, changes in output=11

variable cost per additional unit= 10k/11=909

therefore, for 10 units after 100, variable cost is (calculated in part 1)=10000

for 11 units after 110, variable cost is= 909*11= 9999

fixed cost= 30000-10000-9999= 10001 (approx, 10000)