Mixed Cost

Mixed cost is a cost that contains both the fixed cost and a variable cost component. It is important to understand the mixed cost so that one can find out the degree of presence of both the fixed and the variable cost factor in the mixed cost so that you can predict that how the cost will change at various levels of activity. If the level of the usage of a mixed cost item increases it will result in an increase in the variable cost component of the mixed cost where as the fixed component of the cost does not change. This relationship can be shown in terms of following formula:-

Y = a +bx


Y = Total Cost

a= Total Fixed Cost

b= Variable cost per unit activity

x = Number of units of activity

For example if a company purchases a building the total cost of the building in that year is the mixed cost. The depreciation associated with the building is the fixed cost as it does not changes and remains the same over the year. The utilities expenses are the variable costs as they depend upon the degree of usage of the building. The mixed cost can be calculated as follows:-

Fixed Cost = $100,000

Variable Costs = $ 250 per occupant in the building

Total Mixed Cost = Fixed Cost + Variable Cost x Number of units related to the variable cost

Total Mixed Cost = 100,000 + (250 x 100)

Total Mixed Cost = 125,000



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