Mixed costs

Definition

Mixed costs are expenses that have both fixed and variable components. These costs change with production levels but not proportionally.

5 Must Know Facts For Your Next Test

1. Mixed costs consist of a fixed base cost plus a variable cost that changes with activity level.
2. Examples include utility bills, which have a base charge plus usage-based charges.
3. Mixed costs are also known as semi-variable or semi-fixed costs.
4. The separation of mixed costs into fixed and variable components can be done using methods like the high-low method or regression analysis.
5. Understanding mixed costs is crucial in budgeting and forecasting for businesses.

Review Questions

• What are the two components that make up mixed costs?
• Give an example of a mixed cost in a business setting.
• Name one method used to separate mixed costs into their fixed and variable components.

Related terms

Fixed Costs: Costs that remain constant regardless of the level of production or activity.

Variable Costs: Costs that vary directly with the level of production or activity.

High-Low Method: A technique used to separate mixed costs into fixed and variable components by analyzing the highest and lowest activity levels.