Among the costs of a semiconductor fab, which is generally classified as a variable cost?

Answer: B. Material costs such as wafers and chemicals

Variable costs rise and fall in proportion to production volume or sales; typical examples are material costs for wafers, photoresist, chemicals and gases, outsourced processing costs and sales commissions. Fixed costs are incurred in a constant amount each period regardless of production volume, such as depreciation of equipment and buildings, rent and the salaries of permanent employees. A semiconductor fab requires large investment in equipment and has a high share of fixed costs, so profit tends to fall sharply when the utilization rate drops.

• A. It is recorded in a constant amount every period regardless of production volume, so it is a fixed cost.
• B. Correct. It increases in proportion to the number of wafers produced, so it is a variable cost.
• C. It is paid in a constant amount every month regardless of production volume, so it is a fixed cost.