The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)

Fixed cost

Garrison and Noreen (2003) define this, as a cost that remains constant in total regardless of changes in the level of activity. On a per-unit basis, fixed costs continuously decrease as the level of activity increases. This is because there are constant amount of costs to be incurred by the company whatever the level of activity is and as such, the greater the level of activity, the greater the distribution of fixed costs over the units of output.

Here is a graphical illustration of the behaviour of fixed costs.

Figure 2-7 The behaviour of Total Fixed costs

Total costs

Level of activity

Figure 2-8 The behaviour of unit fixed cost

Unit cost

Level of activity

Semi-variable cost

This is a type of cost that has both fixed and variable components. A semi-variable cost is one which remains constant up to a certain level of activity and which becomes variable for any activity level above that level.

Graphically, a semi-fixed cost looks the following way:

Figure 2-9 The behaviour of semi-variable cost

Level of activity

Total cost.

Fixed cost component

Semi-fixed cost

These are costs that remain constant during short time periods but which vary in the long run. They are also described as step fixed costs. This type of cost is subject to changes at various critical level of activity; as long as the company remains in a certain range of activity, these costs are fixed, but they change when the company shifts to a new critical level.

Graphically, it looks this way:

Figure 2-10 The behaviour of semi-fixed cost

Total costs

Level of activity

Short and long term variable costs

These are two terms used to describe the behaviour of costs in relation to the joint effects of the level of activity, the time factor and the range of activity. Cooper and Kaplan^14(*) (1987) defined a short-term variable cost as one that varies with the production volume. These are the costs that are directly affected by increases in the level of production. They are continuously changing.

The long-term variable costs are those that are affected by other factors than the level of activity and principally the range of items produced. These costs are usually considered as fixed over short periods of time but as the means and processes of producing various kinds of times change in the long run, these costs obviously change and as such they will no more be considered as simple fixed costs.

So, to conclude this discussion of cost behaviour, it is important to note that the predominant aspect in analysing the behaviour of a cost is the factor to which it is tied; the factor that really influence the cost. There may not be only one factor, but as many as the number of cost drivers.

* ¹⁴ Kaplan and Cooper, Harvard Business review