What is a Curvilinear Cost?

//What is a Curvilinear Cost?
What is a Curvilinear Cost? 2017-10-02T08:15:38+00:00

Definition: A curvilinear cost, also called a nonlinear cost, is an expense that increases at an inconsistent rate as production volume increases. In other words, this is an irregular cost that increases at different rates as total output increases.

What Does Curvilinear Cost Mean?

Unlike variable costs that increase at a constant rate as production increases, curvilinear costs have not set parameters. They tend to increase drastically at lower levels of production, flatten out at mid-levels, and increase again at higher levels of output. These irregular cost increases make the curvilinear cost curve look like an “s” when charted on a graph with the x axis representing volume in units and the y axis representing total costs. Compare this to a variable cost curve that simply consists of a straight line from zero to infinity.

Example

Generally, nonlinear costs are made up of groups of expenses. For example, total direct labor for hourly workers is an irregular expense. At lower levels of production, few hourly workers are needed, so the costs are low. When production levels get into the mid-level, more workers are needed. The costs increase, but more efficiencies are also added which allows the same number of workers to increase output. Once the production reaches the highest levels of output, more workers are needed increasing the total labor costs.

As you can see, this nonlinear line looks like the classic “s” on a graph. Production costs increase at low levels, taper off in mid levels, and rise again at the highest levels of output. Quite often management graphs the curvilinear cost lines with the step-wise incremental cost lines.

Management uses these cost curves to plan operations and calculate key ratios like the break-even point in units. Management can also use these curves to judge whether current levels of production are sustainable over the long term and make an estimated decisions about hiring a new workforce or expanding capacity.