Mixed Costs

1250 WordsOct 9, 20125 Pages
Definition and explanation of mixed or semi variable cost: A mixed cost is one that contains both variable and fixed cost elements. Mixed cost is also known as semi variable cost. Examples of mixed costs include electricity and telephone bills. A portion of these expenses are usually consists line rent. Line rent normally is fixed for each month. Variable portion consists units consumed or calls made. The relationship between mixed cost and level of activity can be expressed by the following equation or formula: Y = a + bX In this equation, * Y = The total mixed cost * a = The total fixed cost * b = The variable cost per unit * X = The level of activity The equation makes it very easy to calculate what the total mixed…show more content…
the reason is that the analyst would like to use data that reflect the greatest possible variation in activity. While some costs can be classified as pure fixed or pure variable, many include elements of both types. We’ll look at several common examples of mixed costs, breaking them down into their components. To help students better understand account principles, they are often introduced to costs as being fixed or variable. In reality, many of the costs that businesses incur fall in the middle; in essence they are mixed costs. Variable costs are the type that increase or decrease depending of the level of activity being undertaken. For example a drink company normally will not spend money for juice concentrate if it isn’t making drink products, but can expect the sum that it pays to its suppliers to rise in direct proportion to the amount of drinks it makes. Therefore, management will not need to worry about incurring variable costs if operations are temporarily shut down. On the other hand, fixed costs remain constant with little regard to the level of production being realized. A good example of fixed costs is rent. Of course there are exceptions, but whether or not a company is using the full capacity of the facility it is renting, the rent will still become due. However, a positive characteristic of fixed costs is that they usually remain constant; and so everything that

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