Mixed cost is a type of cost that contains fixed costs and variable costs. At a certain level, the company bears fixed costs; but after passing the level, costs increase variable. Also called as semi-variable cost.
For example, car operating costs, which include fixed costs such as insurance and depreciation; and variable costs such as gasoline because it depends on vehicle mileage.
For simplicity, the cost of the mixture might be written in the following equation:
Y = T + bV
where Y is total mixed cost, T is fixed cost, V is the variable cost per unit activity, and b is the number of activities.
Implications of mixed costs
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Difficulties arise when designing a budget. Because of its nature, companies must determine mixed costs. For this, companies must know what fixed costs are, the number of future activities, and the cost per activity.
For vehicle operations, for example, the company determines fixed costs as well as the average distance of each vehicle. The mileage can vary for each department, for instance, inbound and outbound logistics. So, to calculate the variable costs of car operations, the company needs to estimate future activity in both departments.
