6.0 Total Cost per Unit in Rs. Fli 5.0 0 0 500 1 1000 1500 Production (Units) 200 2500 FERTE It is pretty clear from the above chart that with an increase in production, total cost per unit is decreasing since the fixed costs are constant at every level and their effect per unit goes on decreasing. The marginal cost of production per unit has remained constant and the fixed cost per unit has lowered down from Rs. 2 to Re.0.40. This will affect to a great extent firm's decision to increase production in the present illustration. Segregation of semi-variable overheads For computation of marginal costs, semi-variable costs" pose a problem. These are to be broken up into fixed and variable elements. The variable content of such overheads is added to variable costs to arrive at the total marginal cost. Semi-variable overheads may be segregated into fixed and variable by any of the following methods: (1) Levels of output compared to levels of expenses method. (2) Range method, (3) Degree of variability method, (4) Scattergraph method, (5) Least squares method. Each of the above methods has been discussed in detail with the help of the following illustration: Illustration 3 : Production units Semi-variable Rs. 1993 50 150 30 132 July August September October 80 200 60 170 November 100 230 December 70 190 During the month of January, 1994, the production is 40 units only. Calculate the amount of fixed, variable and total semi-variable expenses for the month. 1 Levels of output compared to levels of expenses method. According to this method, the output at two different levels is compared with corresponding level of expenses. Since the fixed expenses remain constant, the variable overheads are arrived at by the ratio of change in expense to change in output